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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
MARK (ONE)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1997
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to________________
Commission file number 0-26096
THE UNIMARK GROUP, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2436543
(State of incorporation or organization) (I.R.S. Employer Identification No.)
UNIMARK HOUSE
124 MCMAKIN ROAD
BARTONVILLE, TEXAS 76226
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 491-2992
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The approximate aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold as
of March 20, 1998 was $34,356,584. The number of shares of common stock
outstanding as of March 20, 1998 was 8,598,833.
DOCUMENTS INCORPORATED BY REFERENCE:
The UniMark Group, Inc.'s 1998 Proxy Statement contains much of the
information required in Part III of this Form 10-K, and portions of the 1998
Proxy Statement are incorporated by reference herein from the applicable
sections thereof. The Items of this Form 10-K, where applicable, specify which
portions of the 1998 Proxy Statement are incorporated by reference. The portions
of the 1998 Proxy Statement that are not incorporated by reference shall not be
deemed to be filed with the Commission as part of this Form 10-K.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ significantly from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as those discussed elsewhere in
this report. Statements contained in this report that are not historical facts
are forward-looking statements that are subject to the safe harbor created by
the Private Securities Litigation Reform Act of 1995. A number of important
factors could cause the Company's actual results for 1998 and beyond to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. These factors include, without limitation: growth and
integration of new businesses; uncertainty of new product development and market
acceptance of new products; dependence upon availability and price of fresh
fruit; competition; dependence upon significant customers; seasonality and
quarterly fluctuations; risk related to product liability and recall; limited
intellectual property protection; government regulation; dependence on key
management; economic, political and social conditions in Mexico; exchange rate
fluctuations and inflation; and labor relations and costs. These factors are
listed under "Risk Factors" in the Company's prospectus dated June 14, 1996.
PART I
ITEM 1. BUSINESS.
GENERAL
The UniMark Group, Inc. a Texas corporation ("UniMark" or the "Company"), is
a vertically integrated citrus and tropical fruit growing, processing, marketing
and distribution company with operations in Mexico, the United States, Canada
and the United Kingdom . The UniMark Group, Inc. was organized in 1992 to
combine the operations of Industrias Citricolas de Montemorelos S.A. de C.V.
("ICMOSA"), a Mexican citrus and tropical fruit processor which commenced
operations in 1974, with UniMark Foods, Inc. ("UniMark Foods"), a company that
marketed and distributed ICMOSA's products in the United States. The Company
focuses on niche citrus and tropical fruit products including fresh, chilled,
frozen and canned cut fruits and other specialty food ingredients. In addition,
as a result of its acquisition of Grupo Industrial Santa Engracia S.A. de C.V.
("GISE"), UniMark is a major Mexican producer of citrus concentrate, oils and
juices. The Company processes and packages its products at eight plants in
Mexico, one in California, and one in Quebec, Canada. The Company's Mexican and
Californian plants are strategically located in major fruit growing regions. The
Company utilizes food brokers and distributors to market and distribute its cut
fruit products, under the brand names SUNFRESH(R), Fruits of Four Seasons(R),
Flavor Fresh(TM) and Kledor(R) and under various private labels to supermarket
chains, foodservice distributors, wholesale clubs, specialty grocery stores and
industrial users throughout the United States and Canada. In addition, the
Company has developed and utilizes a unique processing method that separates
cold-peeled citrus fruit into individual juice-containing "cell-sacs." These
cell-sac products are sold to food and soft drink manufacturers in Japan to
enhance the flavor and texture of fruit juices and desserts. Sales to the
Company's Japanese consumers are facilitated through Japanese trading companies.
The Company's citrus concentrate and single strength citrus juices are sold
directly to major juice importers and distributors in North America, Europe and
the Pacific Rim.
STRATEGY
UniMark's strategic objective is to become the leading vertically integrated
grower, processor, marketer and distributor of niche fruit and other selected
agricultural products. To achieve this objective, the key elements of UniMark's
operating and acquisition strategies are as follows:
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Operating Strategy
Expand vertical integration of growing, processing, marketing and
distribution operations. UniMark intends to continue its vertical
integration strategy. UniMark believes that by vertically integrating its
growing, processing, marketing and distribution operations, the Company can
effectively control the availability, cost and quality of its products.
Expand fruit growing operations in Mexico. To ensure the availability of
the highest quality raw materials, UniMark intends to expand its fruit
growing operations in Mexico, utilizing advanced agricultural practices.
UniMark believes that Mexico's favorable climate and soil conditions,
coupled with competitive labor and land costs, offer significant
opportunities to grow high quality fruits in a cost effective manner.
Capitalize on brand awareness and market penetration. In the retail market,
UniMark intends to capitalize on the brand awareness and market penetration
attained by its SUNFRESH(R) brand name products. Utilizing its "Fruit Made
Easy(R)" concept, UniMark plans to expand its line of specialty chilled,
frozen and canned "ready-to-eat" pre-cut fruit that offers the benefits of
healthy, low-fat foods with a multitude of vitamins to the increasingly
health conscious consumer.
Introduce New Cut Fruit Products. UniMark believes that a significant
opportunity exists for the introduction of new cut fruit products. In 1998,
the Company plans to introduce or expand introduction of three new product
categories:
Canned Products. Initial market test of the Company's canned citrus
and tropical fruit products was met with positive reaction from
retailers and consumers. During 1988, the Company intends to expand
these canned products into broad scale distribution.
Fruit Jelite. In the second quarter of 1998, UniMark plans to
reintroduce its Fruit Jelite(R) line of chilled gelatin snack products.
The first test in 1997 indicated that some product modifications were
necessary including the introduction of multi-pack units.
Frozen to Fresh. Utilizing the Company's cryogenic freezing
technology, UniMark plans to introduce two product lines, one for food
service and one for retail, of "frozen to fresh" single-serve cups. At
the same time, the Company intends to improve its initial IQF food
service concepts. UniMark's product development and commercialization
efforts are subject to all of the risks inherent in the development of
new products.
Expand Into New Markets. In the fall of 1997, UniMark opened a trading
office in the United Kingdom, under the name of UniMark Foods Europe, Ltd.
("UniMark Europe"). This subsidiary focuses on the sales and marketing of
UniMark's frozen products within the United Kingdom and Europe. The Company
currently has market tests running in several food service establishments
within the UK. The Company expects to start tests in retail stores in the
second quarter of 1998. UniMark Europe has entered into an agreement with
The Fruit Store, Ltd. ("Fruit Store") under which UniMark Europe can use
Fruit Store facilities for re-packing, storage and shipping of products. In
addition, Fruit Store provides administrative services to UniMark Europe.
Expand position as a leading Mexican juice exporter to U.S., European and
Asian markets. With the 1996 acquisition of GISE, the Company is a major
Mexican producer of citrus concentrate. The Company's goal is to expand its
position as a leading exporter of high quality Mexican citrus juices to the
U.S., European and Asian markets. Because of the high quality of Mexican
citrus juice, it is often blended with juices from other citrus producing
regions to enhance the quality of these other juices.
RESTRUCTURING INITIATIVES
In a concerted effort to maximize production efficiencies and improve
profitability, the Company initiated several changes in its US and Mexican
operations during the second half of 1997.
In July, 1997 the Company discontinued chilled fruit production at its
Lawrence, Massachusetts facility, consolidating this production at its more
efficient facilities in Mexico. In September, 1997, the remaining fresh cut
production was discontinued at the Lawrence facility because of insufficient
contribution margin
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to sustain this production, and the facility was limited in use to a warehousing
and distribution center. By utilizing the larger capacity of the Company's new
warehouse facility in McAllen, Texas and its strategic alliance with a national
shipping and logistics company, the Company was able to further reduce costs by
closing the Lawrence facility in January, 1998. The Company plans to sub-lease
this facility.
In August, 1997 the Company transferred its operations from its 20,000
square foot warehouse in Hidalgo, Texas to its recently acquired 110,000 square
foot warehouse facility in McAllen, Texas that provides dry, chilled and frozen
storage capacity. In addition, the Company entered into a strategic alliance
with an independent shipping company to provide logistical and shipping services
in an effort to ensure reliable, on time delivery and improve customer service.
At its Los Angeles, California facility, the Company has made certain
management changes including replacing the general manager and office manager.
In addition, an employee leasing arrangement for production line workers has
been eliminated and improvements in production processes have been implemented.
The Company has also recently added two new high volume accounts.
In Mexico, the Company has segregated its repacking operations and
consolidated its production activities allowing for more efficient, specialized
operations and improved utilization of plant capacity. In the fourth quarter of
1997, the Company began operating its new repack facility to mix and package all
its mixed fruit salads. The facility is strategically located within the
Company's new warehouse facility in Montemorelos, Mexico allowing for direct
access of the preprocessed ingredients, improved response time and fresher
products. This in turn allows the Company's existing production lines to
concentrate solely on fruit processing. Because of this increase in capacity,
the Company was able to shutdown its production lines at its Zamora and San
Rafael plant facilities and to eliminate the need to outsource fruit processing
to co-packers in 1998. During 1997, approximately five million pounds of fruit
were processed by co-packers. These initiatives in Mexico have resulted in
personnel reductions of approximately 600 people while improving productivity
and plant utilization levels.
CURRENT PRODUCTS
The Company's principal products are derived from citrus and tropical
fruits. The Company has focused on applying its knowledge of fruit growing and
processing with its international marketing and distribution capabilities to
develop four key product categories. These categories include cut fruits,
juices, specialty food ingredients and fresh fruit. The following is a
description of each of these categories and their specific products:
CUT FRUITS. Under the brand names of SUNFRESH(R), Fruits of Four
Seasons(R), Kledor(R), Flavor Fresh(TM) and under various private labels,
UniMark markets:
Chilled fruit. The chilled fruit line includes mango slices,
grapefruit segments, orange segments, pineapple chunks, sliced papaya,
and a variety of fruit salads. These products are packed for retail,
wholesale club and food service customers.
IQF citrus and tropical fruit. UniMark is expanding its retail and
foodservice business by marketing citrus and tropical fruit products
utilizing its individual quick frozen ("IQF") process. UniMark
believes that this IQF process allows it to process fruits at the peak
of their season while preserving the fresh-like texture and taste of
the fruit. The frozen line of fruit includes melon, mango, orange,
grapefruit, papaya, pineapple and various combinations of products
packed for food service and industrial customers.
Canned fruit. The canned fruit line includes orange segments and
grapefruit segments as well as citrus and tropical salads packed for
retail and foodservice customers.
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JUICES. The Company, through GISE, markets directly to major industrial
users a full line of citrus juice products including citrus concentrates
and single strength juices:
Citrus concentrate. Citrus juice concentrates are produced from
oranges, grapefruits, tangerines, Persian limes and lemons.
Single strength juices. Citrus juices are produced from oranges.
SPECIALTY FOOD INGREDIENTS. UniMark believes that significant market
opportunities exist in providing customers with specialty food ingredient
products that can be derived from processing citrus and tropical fruits.
Presently, UniMark's specialty food ingredients include:
Citrus cell-sacs. The Company has developed and utilizes a unique
processing method that separates cold-peeled citrus fruit into
individual juice-containing cell-sacs. These cell-sac products are
sold to food and soft drink manufacturers in Japan to enhance the
flavor and texture of fruit juices and desserts.
Citrus oils. Citrus oils are extracted from oranges, grapefruits,
tangerines, Persian limes and lemons. These oils are primarily used by
the Company's customers in beverages, perfumes and other scented
products.
FRESH FRUIT. In 1997 the Company began marketing of fresh pineapple under
the Simply Fresh(R) brand name.
MARKETING, SALES AND DISTRIBUTION
MARKETING. UniMark's marketing department develops brand strategies for the
Company's products, including product development, pricing strategy, consumer
and trade promotion, advertising, publicity and package design. This
department's responsibilities include determining the allocation of resources
between consumer and trade spending programs, pricing and profitability
analysis, as well as product and packaging designs.
In the retail and wholesale club markets, the Company's primary focus has
been on the chilled fruit category. UniMark intends to capitalize and strengthen
the brand awareness and market penetration attained by its SUNFRESH(R) and
Flavor Fresh(TM) brands in the United States and the Kledor(R) brand in Canada.
Under its "Fruit Made Easy(R)" slogan, UniMark's marketing strategy includes
continued expansion of its comprehensive line of brand name specialty chilled,
frozen and canned "ready-to-eat" pre-cut fruit that offers the benefits of
healthy, low-fat foods with a multitude of vitamins to the health conscious
consumer. The Company's marketing objectives include increasing "impulse buying"
of its retail products by building greater product visibility through
"eye-catching" package designs, innovative rack systems and trial package
promotions. In addition, the Company utilizes trade promotions, such as
quarterly price allowances, to generate "feature promotion activity" for its
products. The SUNFRESH(R)
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product line also receives substantial advertising support in trade publications
and national food shows throughout the year.
In the foodservice arena, the focus is on securing market leadership in the
chilled fruit category, primarily through private label programs with major
foodservice distributors, and a strong branded approach utilizing the
SUNFRESH(R) and Fruits of Four Seasons(R) labels in the United States and the
Kledor(R) brand in Canada. Marketing efforts in these channels are directed
toward trade usage programs and yearly trade rebates.
SALES. UniMark's sales organization consists of six sales management teams
primarily focusing on the management of independent food brokers or
international representatives that directly interface with the customer. These
teams are: retail sales, Japanese sales, wholesale club sales, foodservice
sales, European sales and Canadian sales.
The retail team is led by a sales manager and consists of four regional
managers, each with geographic responsibility for approximately 25 percent of
the United States. The Company's Japanese exports are directed by an export
sales manager located in Mexico City who deals with agents primarily from
Japanese trading companies. In addition, relationships with the Company's
Japanese customers are handled by the Company's senior executives. The wholesale
club market has one sales manager interfacing directly with key wholesale club
distributors. The foodservice team is guided by a vice president of foodservice
sales and four regional managers. In Europe, the Company is represented by a
sales and marketing manager that works directly with the Company's customers.
The Company's Canadian sales team operates out of Les Produits Deli-Bon Inc.
("Deli-Bon") utilizing independent food brokers throughout Canada although its
primary focus is within the Province of Quebec.
The following table shows, for the last three years, the amount and
percentage of net sales contributed by the various market segments for the
Company's products:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1995 1996 1997
------------------- ------------------- -------------------
NET NET NET
SALES PERCENT SALES PERCENT SALES PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Retail sales ........................... $12,537 34.0% $18,190 27.9% $27,202 33.5%
Foodservice sales ...................... 861 2.3 15,122 23.2 23,042 28.3
Citrus juice and oil sales ............. -- -- 12,376 19.0 13,679 16.8
Japan sales ............................ 12,116 32.9 7,367 11.3 3,393 4.2
Wholesale club sales ................... 7,061 19.2 7,894 12.1 11,303 13.9
Industrial and other sales ............. 4,291 11.6 4,289 6.5 2,665 3.3
------- ------- ------- ------- ------- -------
Total ........................ $36,866 100.0% $65,238 100.0% $81,284 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
Retail sales. UniMark markets its products to more than 200 regional and
national supermarket chains and wholesalers throughout the United States and
Canada. In conjunction with its own national sales force, UniMark utilizes over
50 independent food brokers and distributors to sell its products.
Food service sales. Sales to the United States government, fast food chains,
restaurants, hospitals and other food service customers are made either directly
to or through food service distributors by the Company's foodservice sales
force. The Company is represented by more than 40 food service brokers.
Japanese sales. UniMark exports a line of pasteurized citrus products and
juice-containing citrus cell-sac products to Japan for use in the food and
beverage industries. Although sales to industrial customers in Japan are
facilitated through Japanese trading companies, the Company maintains direct
relationships with its industrial customers. During 1995, 1996 and 1997 sales to
the Company's Japanese customers, through
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Mitsui Foods, Inc., a Japanese trading company, accounted for approximately
27.5%, 8.9% and 3.9%, respectively, of the Company's net sales. In 1998, the
Company expects a reversal in the declining sales trend to Japan.
Wholesale club sales. UniMark indirectly sells products to Sam's Wholesale
Clubs and other wholesale clubs throughout the United States. During 1995, 1996
and 1997 indirect sales to Sam's Wholesale Clubs accounted for approximately
17.6%, 8.3% and 6.6%, respectively, of the Company's net sales.
European sales. UniMark sells products directly to industrial users of IQF
products, including orange, pineapple, mango and papaya products. The Company
also sells its single serve "Frozen to Fresh" single serve cups to foodservice
operators through certain foodservice distributors. Similar product concepts
will be introduced this year to major retailers in the UK. In the UK, the
Company uses its Flavor Fresh(TM) trade name.
Industrial and other sales. Industrial and other sales consist primarily of
IQF sales to industrial users in the United States for re-packing or further
processing. UniMark utilizes independent food brokers to sell its products to
industrial users in the United States.
DISTRIBUTION. UniMark operates its own trucking fleet to transport finished
cut fruit products from its Mexican processing facilities to its new
distribution center in McAllen, Texas. From there, deliveries are made through
an arrangement the Company has with England Logistics, Inc. ("England"), a
division of C.R. England & Sons of Salt Lake City, Utah. In March 1998, the
Company has entered into a letter of intent for England to take over the
management of the Company's warehouse operations in McAllen, Texas. In Canada,
deliveries are made to customers by independent trucking companies from
Deli-Bon's facilities. Products exported to Japan are shipped directly from
Mexico. Products sold by UniMark Europe are either shipped directly to its
customers or through a facility owned by Fruit Store. GISE transports finished
product by common carrier to North American customers.
Products to overseas customers are shipped directly in containers.
PROCUREMENT
Currently, a substantial quantity of the fruit processed by the Company is
purchased from third parties. However, the Company's Mexican grapefruit growing
operations supply over 80% of the Company's grapefruit demand. In addition, the
Company purchases grapefruit from growers in the Texas Rio Grande Valley for
processing at its ICMOSA plant. For the 1997-98 growing season, the Company has
entered into agreements with Mexican growers of mangos to supply the Company's
anticipated demand. Substantially all of the oranges and melons used in the
Company's operations are purchased from third-party growers throughout Mexico.
UniMark has commenced a significant pineapple growing project. Initial
production from this project began in 1997 and UniMark intends to expand this
project until the Company has sufficient supply for its own processing needs.
UniMark believes that production from this project not only will provide UniMark
with a high quality supply of pineapples for processing but also will produce a
significant amount of pineapple for the North American fresh fruit market.
The Company purchases citrus from growers throughout Mexico. GISE's two
juice plants are located in Cd. Victoria, Tamaulipas, Mexico and Poza Rica,
Veracruz, Mexico in the heart of Mexico's two major citrus growing regions. The
State of Veracruz, located along the east coast of Mexico, is Mexico's largest
orange producing state followed by the neighboring states of Tamaulipas and San
Luis Potosi. Citrus from this region is available for processing at GISE's
Veracruz facility early in the season because of this region's southern
location. GISE's Cd. Victoria plant processes fruit grown primarily in the
northeastern region of Mexico. The fruit is transported by common carrier to
GISE's two plants located in Mexico.
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PROCESSING
Cut Fruit. Upon arrival at the Company's processing plants, the fruit is
inspected and washed. On the production line, the fruit is peeled and cut into
various presentations (slices, sections, chunks, balls). Following this process,
some fruits are further processed into juice-containing cell-sacs. In addition,
some processed fruits are frozen utilizing the Company's IQF process. Other
processed fruits are transferred directly into bulk storage or final product
packaging (pails, jars and cans). After further processing, the juice-containing
cell-sacs are canned while the frozen products are packaged in plastic bags or
trays. The ICMOSA plant is the Company's main plant and serves as the hub for
the Company's other Mexican processing plants, which primarily produce
semi-processed product. At the ICMOSA plant, products are labeled and packaged
for final shipment. ICMOSA also delivers bulk raw materials to Deli-Bon and
Simply Fresh for packing into final presentations. Only limited processing takes
place at Deli-Bon. While Simply Fresh relies mostly on raw materials from
California growing regions some raw materials are provided by ICMOSA. The
Company cans fruit at its ICMOSA and Puebla plants.
Juice. GISE's operations are substantially automated. Once the fruit arrives
at a plant, it is unloaded onto rollers. The fruit is then washed and inspected.
Bruised and damaged fruit is removed by hand and the remaining fruit is then
routed to rollers with short needles, which extract the oil from the peel. Once
the oil is removed, the fruit is sorted by size and sent to slicing and
squeezing machines. These machines slice the fruit and squeeze the juice and
pulp completely from the peel. The juice is then separated from the pulp and the
water is extracted from the juice. Upon further processing, the juice and juice
concentrate are stored on site until it is shipped directly to customers.
RESEARCH AND DEVELOPMENT
The Company's research and development department provides product,
packaging and process development, analytical and microbiological services, as
well as agricultural research.
EMPLOYEES
As of March 1, 1998, UniMark employed approximately 3,900 full-time
employees, most of whom were located in Mexico. In Mexico, labor relations are
governed by separate collective labor agreements between UniMark and the unions
representing the particular group of employees. All of UniMark's employees in
Mexico, whether seasonal or permanent, are affiliated with labor unions which
are generally affiliated with a national confederation. Consistent with other
labor practices in Mexico, wages are negotiated every year while other terms are
negotiated every two years.
In the United States and Canada, UniMark's employees are not covered by
collective bargaining agreements. UniMark believes that its relations with all
of its employees are good.
COMPETITION
The food industry, including each of the markets in which the Company
competes, is highly competitive with respect to price and quality (including
taste, texture, healthfulness and nutritional value). The Company faces direct
competition from citrus processors with respect to its existing product lines
and faces potential competition from numerous, well established competitors
possessing substantially greater financial, marketing, personnel and other
resources than the Company. The Company's fruit juice products compete broadly
with all beverages available to consumers. In addition, the food industry is
characterized by frequent introduction of new products, accompanied by
substantial promotional campaigns. In recent years, numerous companies have
introduced products positioned to capitalize on growing consumer preference for
fresh fruit products. It can be expected that the Company will be subject to
increasing competition from companies whose products or marketing strategies
address these consumer preferences.
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ENVIRONMENTAL MATTERS
As a result of its agricultural, food and juice processing activities, the
Company is subject to numerous foreign and domestic environmental laws and
regulations.
The operations of UniMark in Mexico are subject to Mexican federal and state
laws and regulations relating to the protection of the environment. The
principal legislation is the federal General Law of Ecological Balance and
Environmental Protection (the "Ecological Law"), which is enforced by the
Ministry of Social Development ("Sedesol"). Under the Ecological Law, rules have
been promulgated concerning water pollution, air pollution, noise pollution and
hazardous substances. Sedesol can bring administrative and criminal proceedings
against companies that violate these environmental laws, and can also close non-
complying facilities. The operations of UniMark in Canada are subject to
Canadian federal and provincial laws and regulations relating to the protection
of the environment including An Act Respecting Occupational Health and Safety
(Quebec), the Canadian Environmental Protection Act (Canada), and the
Environment Quality Act (Quebec). Similarly, the operations of UniMark in the
United States are subject to United States federal and state laws and
regulations relating to the protection of the environment. Although the Company
believes that its facilities currently are in compliance with all applicable
environmental laws, failure to comply with any such laws could have a material
adverse effect on the Company.
GOVERNMENT REGULATION
The manufacture, processing, packing, storage, distribution and labeling of
food and juice products are subject to extensive regulations enforced by, among
others, the FDA and state, local and foreign equivalents thereof and to
inspection by the United States Department of Agriculture and other federal,
state, local and foreign agencies. Applicable statutes and regulations governing
food products include "standards of identity" for the content of specific types
of foods, nutritional labeling and serving size requirements and under "Good
Manufacturing Practices" with respect to production processes. The Company
believes that its products satisfy, and its new products will satisfy, all
applicable regulations and that all of the ingredients used in its products are
"Generally Recognized as Safe" by the FDA for the intended purposes for which
they will be used. The Company, on a daily basis, tests its products at its
internal laboratories and, from time to time, submits samples of its products to
independent laboratories for analysis. Failure to comply with applicable laws
and regulations could subject the Company to civil remedies, including fines,
injunctions, recalls or seizures, as well as potential criminal sanctions, which
could have a material adverse effect on the Company.
PRODUCT LIABILITY AND PRODUCT RECALL
The testing, marketing, distribution and sale of food and beverage products
entails an inherent risk of product liability and product recall. There can be
no assurance that product liability claims will not be asserted against the
Company or that the Company will not be obligated to recall its products.
Although the Company maintains product liability insurance coverage in the
amount of $5,000,000 per occurrence, there can be no assurance that this level
of coverage is adequate. A product recall or a partially or completely uninsured
judgment against the Company could have a material adverse effect on the
Company.
INTELLECTUAL PROPERTY RIGHTS
The Company regards its trademarks, trade dress, trade secrets and similar
intellectual property as important to its success. The Company has been issued a
registered trademark for its SUNFRESH(R), Fruits of Four Seasons(R), Jalapeno
Sam(R), Fruit Made Easy(R), Fruit Jelite(R), Simply Fresh(R) and Kledor(R)
trademarks. The Company also utilizes the Flavor Fresh(TM) tradename. In
addition, the Company holds patent rights with respect to certain fruit cutting
machinery and a non-assignable, exclusive license to manufacture and sell
certain fruit products in the US, Canada and Mexico.
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ITEM 2. PROPERTIES.
GROWING OPERATIONS
To ensure the availability of the highest quality raw materials, UniMark
intends to expand its fruit growing operations in Mexico, utilizing advanced
agricultural practices. UniMark believes that Mexico's favorable climate and
soil conditions, coupled with competitive labor and land costs, offer
significant opportunities to grow high quality fruits in a cost effective
manner. Presently, a majority of the Company's raw materials are provided by
growers under various arrangements, including operating agreements and
individual fixed price contracts to purchase entire production. The following
table sets forth the Company's various agricultural projects:
<TABLE>
<CAPTION>
PROPERTY
NAME LOCATION ACREAGE CROP INTEREST
----------------------- ------------------- --------- ----------------- ---------
<S> <C> <C> <C> <C>
Loma Bonita I Grove......... Loma Bonita, 190 acres White grapefruit Leased
Oaxaca, Mexico
Loma Bonita II Grove (1).... Loma Bonita, Oaxaca, 625 acres Pink grapefruit, Leased
Mexico pineapple, hearts
of palm.
Villa Azueta I Grove (2).... Villa Azueta, 84 acres Pineapple growing Leased
Veracruz, Mexico and packing.
Villa Azueta II Grove....... Villa Azueta, 610 acres Pineapple Owned
Veracruz, Mexico
Azteca Grove (3)............ Montemorelos, Nuevo 144 acres White and Rio Red Leased
Leon, Mexico grapefruit
Las Tunas Grove............. Isla, 120 acres White and pink Leased
Veracruz, Mexico grapefruit
Victoria Grove.............. Cd. Victoria, 240 acres Oranges and Owned
Tamaulipas, Mexico Italian lemons
Victoria Grove II........... Cd. Victoria, 120 acres Italian lemons Owned
Tamaulipas, Mexico
Victoria Grove III.......... Cd. Victoria, 264 acres Italian lemons Owned
Tamaulipas, Mexico
Victoria Grove IV........... Cd. Victoria, 1,680 acres Italian lemons Owned
Tamaulipas, Mexico (50% planted)
Victoria Grove V............ Cd. Victoria, 4,080 acres Italian lemons to Purchase
Tamaulipas, Mexico be planted. pending.
</TABLE>
- ---------
(1) Presently, this grove consists of approximately 240 acres of pink
grapefruit, 300 acres of pineapple and 60 acres of hearts of palm.
(2) Villa Azueta is the southern headquarters of UniMark's agricultural
operations. The agricultural headquarters is used for the development of
pineapple seedlings, as well as other agricultural crops, and the packing
of fresh pineapple. In 1995, the Company entered into a 10-year lease for
this facility and has an option to purchase the facility for fair market
value determined at the time such option is exercised.
(3) In 1994, ICMOSA entered into a 10-year operating agreement with the owners
of this grove, which is located near the ICMOSA plant in Montemorelos.
Pursuant to the agreement, ICMOSA operates the grove and purchases all the
grapefruit at a formula price tied to the price of grapefruit purchased
from unrelated third parties. The grove consists of approximately 13,000
grapefruit trees and incorporates advanced agricultural technology. Each
tree has a watering and feeding system which can also be utilized as an
anti-freeze system utilizing mist generated by three 500 horsepower
boilers.
In October, 1996, GISE and The Coca-Cola Export Corporation ("Coca-Cola"),
an affiliate of The Coca-Cola Company, entered into a ten year Supply Contract,
with a ten year renewal option, for production of Italian lemons. Pursuant to
the terms of this Supply Contract, GISE will plant and grow approximately 12,000
acres of Italian lemons for sale to Coca-Cola at pre-determined prices The
Supply
10
<PAGE> 11
Contract requires Coca-Cola to provide, free of charge, 750,000 lemon trees,
enough to plant approximately 7,200 acres. In addition, the Supply Contract
requires Coca-Cola to purchase all the production from the project. GISE
subsequently negotiated an agreement to extract lemon oil from such lemons for
Coca-Cola. UniMark believes that this arrangement will afford GISE with
operational benefits by allowing GISE to process lemons during the off season
and significantly expand the Company's agricultural operations in Mexico.
FACILITIES
The Company's principal processing facilities are described below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
APPROXIMATE EMPLOYEES
SQUARE (AS OF MARCH
NAME LOCATION FOOTAGE 1, 1998) INTEREST
----------------------------- -------------------------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
FRUIT PROCESSING OPERATIONS
ICMOSA Plant ................ Montemorelos, Nuevo Leon, Mexico 80,000 1,100 Owned (1)
IHMSA Plant.................. Montemorelos, Nuevo Leon, Mexico 40,000 800 Leased (2)
Azteca Plant................. Montemorelos, Nuevo Leon, Mexico 50,000 320 Leased (2)
Puebla Plant................. Tlatlauquipec, Puebla, Mexico 50,000 500 Owned
Isla Plant................... Isla, Veracruz, Mexico 32,000 300 Leased (3)
San Rafael Plant (6)......... San Rafael, Veracruz, Mexico 28,500 400 Leased
Zamora Plant (6)............. Zamora, Michoacan, Mexico 41,000 120 Leased (4)
Deli-Bon Plant............... Quebec City, Quebec, Canada 16,800 36 Owned
Simply Fresh Plant........... Los Angeles, California 45,000 148 Leased (5)
Flavor Fresh Plant (6)....... Lawrence, Massachusetts 60,000 100 Leased (2)
JUICE AND OIL OPERATIONS
Victoria Juice Plant......... Cd. Victoria, Tamaulipas, Mexico 65,700 199 Owned (1)
Frutalamo Juice Plant........ Alamo, Veracruz, Mexico 27,700 107 Leased
Veracruz Juice Plant......... Poza Rica, Veracruz, Mexico 22,900 76 Owned
</TABLE>
- ----------
(1) This property is subject to individual mortgages with the real estate as
collateral.
(2) The agreement pursuant to which this facility is leased by the Company
grants the Company the option to purchase the facility prior to the
expiration of such agreement at a purchase price equal to the then current
fair market value of the facility.
(3) The agreement pursuant to which this facility is leased by the Company
grants the Company the option to purchase the facility during the first
three years of such agreement expiring on June 30, 1998 for a purchase price
of $850,000.
(4) The agreement pursuant to which this facility is leased by the Company
grants the Company the option to purchase the facility during the first
three years of such agreement expiring on March 31, 1999 for a purchase
price of $1.4 million.
(5) The agreement pursuant to which this facility is leased by the Company
grants the Company the option to purchase the facility through August 14,
1998 for a purchase price of $4.8 million.
(6) These plants are idle and are being offered for sub-lease.
11
<PAGE> 12
The Company's other supporting facilities are described below:
In addition to the properties described above the Company maintains its
corporate headquarters in Bartonville, Texas; a distribution center in McAllen,
Texas; and a lodging facility in Cd. Victoria, Tamaulipas, Mexico.
Corporate Headquarters. UniMark leases approximately 13,000 square feet of
office space for its corporate headquarters in Bartonville, Texas (located 20
miles from the Dallas/Fort Worth International Airport) from an entity
controlled by Jorn Budde, the Company's President, Chief Executive Officer and
Chairman of the Board prior to his resignation in February, 1998. As of March 1,
1998, UniMark employed 31 people at this facility with space well utilized for
the corporate headquarters.
McAllen Distribution Center. The Company's recently acquired refrigerated
distribution center began operations in August, 1997 in McAllen, Texas (on the
Texas/Mexico border) which consists of approximately 110,000 square feet and is
fully utilized. As of March 1, 1998, 15 people were employed at this
company-owned facility.
Hidalgo Distribution Center. The Company's previous refrigerated
distribution center in Hidalgo, Texas consists of approximately 20,000 square
feet and is currently vacant and being offered for sale.
The GISE Conference Facility. In connection with the GISE Acquisition in May
1996, the Company acquired an "hacienda" which has been declared a historic
landmark. This lodging facility is located near GISE's plant in Cd. Victoria,
Tamaulipas, Mexico, occupies approximately 90,000 square feet and is situated on
approximately 10 acres. The Company utilizes this facility, in part, as a
conference center.
ITEM 3. LEGAL PROCEEDINGS.
From time to time the Company is involved in litigation relating to claims
arising from its operations in the normal course of business or otherwise the
outcome of which is not expected to have a materially adverse affect on the
Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1997.
At the Company's Annual Meeting of Shareholders held on June 6, 1997, the
entire eight member Board of Directors was re-elected in a non-contested vote
and the selection of Ernst & Young, LLP as the Company's independent public
accountants for the year ended December 31, 1997 was ratified. In addition, a
proposal to amend the Company's 1994 Employee Stock Option Plan to reserve an
additional 340,000 shares of common stock for issuance thereunder was approved.
This proposal received 6,595,817 affirmative votes, 340,545 negative votes and
32,425 votes were withheld. A proposal to amend the Company's Articles of
Incorporation to authorize a new class of preferred stock was not approved. This
proposal received 1,834,288 affirmative votes, 1,238,882 negative votes and
3,895,617 votes were withheld. Approval for this proposal required 5,722,555
affirmative votes.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"UNMG". The following table sets forth, for the periods indicated, the high and
low sale prices as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year Ended December 31, 1996:
First Quarter....................................... $16 5/8 $11 7/8
Second Quarter...................................... 17 7/8 13 3/4
Third Quarter....................................... 17 3/4 10 5/8
Fourth Quarter...................................... 12 1/2 7 --
Year Ended December 31, 1997:
First Quarter....................................... 10 5/8 6 --
Second Quarter...................................... 8 7/8 4 5/8
Third Quarter....................................... 9 1/8 7 --
Fourth Quarter...................................... 8 1/4 2 3/4
</TABLE>
- ----------
The quotations in the tables above reflect inter-dealer prices without
retail markups, markdowns or commissions. On March 20, 1998, the last reported
sale price for the Common Stock on the Nasdaq National Market was $4.75. As of
March 20, 1998 there were 153 shareholders of record of the Common Stock and in
excess of 2,200 beneficial shareholders.
The Company has not paid any cash dividends since its inception and for the
foreseeable future intends to follow a policy of retaining all of its earnings,
if any, to finance the development and continued expansion of its business.
There can be no assurance that dividends will ever be paid by the Company.
Additionally, the Company's loan agreements with Cooperatieve Centrale
Raiffeisen-Boerenleenbank B. A. ("Rabobank Nederland") restrict the Company from
declaring or paying any dividends on its shares of Common Stock without the
prior written consent of Rabobank Nederland. Any future determination as to
payment of dividends will depend upon the Company's financial condition, results
of operations and such other factors as the Board of Directors deems relevant.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -Liquidity and Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth, for the periods and at the dates indicated,
selected historical consolidated financial data of the Company. The selected
historical consolidated financial data has been derived from the historical
consolidated financial statements of the Company and in the case of the fiscal
years ended December 31, 1995, 1996 and 1997 should be read in conjunction with
such financial statements and the notes thereto included elsewhere herein.
13
<PAGE> 14
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996(1) 1997
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales ........................................ $18,893 $25,346 $36,866 $65,238 $ 81,284
Gross profit ..................................... 5,952 7,403 12,674 18,626 22,004
Income (loss) from operations .................... 633 1,530 4,251 1,027 (5,950)
Extraordinary gain ............................... -- -- -- 330 139
Net income (loss) ................................ 73 1,015 2,947 543 (9,680)
Basic earnings (loss) per share:
Income (loss) before extraordinary gain ........ $ 0.02 $ 0.28 $ 0.57 $ 0.03 $ (1.15)
Extraordinary gain ............................. -- -- -- 0.04 .02
------- ------- ------- ------- --------
Net income (loss) .............................. $ 0.02 $ 0.28 $ 0.57 $ 0.07 $ (1.13)
======= ======= ======= ======= ========
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain ........ $ 0.02 $ 0.28 $ 0.53 $ 0.03 $ (1.15)
Extraordinary gain ............................. -- -- -- 0.04 .02
------- ------- ------- ------- --------
Net income (loss) .............................. $ 0.02 $ 0.28 $ 0.53 $ 0.07 $ (1.13)
======= ======= ======= ======= ========
Shares used in per share calculations:
Basic ........................................ 3,000 3,642 5,213 7,450 8,590
Diluted ...................................... 3,000 3,642 5,571 7,796 8,590
Total assets ..................................... $ 4,007 $11,176 $26,498 $76,683 $ 94,616
Long-term debt ................................... 296 919 699 4,332 8,626
Stockholders' equity ............................. 459 6,392 14,978 47,800 38,252
</TABLE>
- --------
(1) Includes the results of operations of GISE and Simply Fresh since April 1,
1996, and Deli-Bon since January 3, 1996, the effective dates of these
acquisitions, as more fully explained in the Company's Notes to Consolidated
Financial Statements for the year ended December 31, 1997 contained elsewhere
herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
INTRODUCTION
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and "Selected Consolidated Financial
Data" included elsewhere in this Prospectus. This discussion does not include
the results of operations of Deli-Bon, GISE and Simply Fresh before their
respective acquisition dates.
CONVERSION TO U.S. GAAP
The Company conducts substantially all of its operations through its wholly
owned operating subsidiaries: UniMark Foods, UniMark International, Inc.,
ICMOSA, GISE, Simply Fresh and Deli-Bon. ICMOSA is a Mexican corporation with
its headquarters located in Montemorelos, Nuevo Leon, Mexico, whose principal
activities consist of operating five citrus processing plants and various citrus
groves throughout Mexico. GISE is a Mexican corporation with its headquarters
located in Victoria, Tamaulipas, Mexico, whose principal activities consist of
operating three citrus juice and oil processing plants. ICMOSA and GISE maintain
their accounting records in Mexican pesos and in accordance with Mexican
generally accepted accounting principles and are subject to Mexican income tax
laws. ICMOSA's and GISE's financial statements have been converted to United
States generally accepted accounting principles ("U.S. GAAP") and U.S. dollars.
Deli-Bon maintains its accounting records in Canadian dollars and in accordance
with Canadian generally accepted accounting principles and is subject to
Canadian income tax laws.
Unless otherwise indicated, all dollar amounts included herein are set
forth in U.S. dollars in accordance with U.S. GAAP. The functional currency of
UniMark and its subsidiaries is the U.S. dollar.
14
<PAGE> 15
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data expressed
as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales ............................................. 100.0% 100.0% 100.0%
Cost of products sold ................................. 65.6 71.4 72.9
----- ----- -----
Gross profit .......................................... 34.4 28.6 27.1
Selling, general and administrative expenses .......... 22.9 27.0 34.4
----- ----- -----
Income (loss) from operations ......................... 11.5 1.6 (7.3)
Other income (expense):
Interest expense .................................... (0.9) (2.2) (4.1)
Interest income ..................................... 1.3 0.8 0.5
Other ............................................... 0.6 (0.3) (1.1)
----- ----- -----
Income (loss) before income taxes and
extraordinary gain .................................. 12.5 (0.1) (12.0)
Income tax expense (benefit) .......................... 4.5 (0.4) 0.1
----- ----- -----
Income (loss) before extraordinary gain ............... 8.0 0.3 (12.1)
Extraordinary gain, net of applicable income taxes .... .-- 0.5 0.2
----- ----- -----
Net income (loss) ..................................... 8.0% 0.8% (11.9)%
===== ===== =====
</TABLE>
Years Ended December 31, 1996 and 1997
Net sales increased 24.6% from $65.2 million in 1996 to $81.3 million in
1997. This increase was primarily due to increases in foodservice sales, retail
sales and club sales. Foodservice sales increased 52.4% from $15.1 million in
1996 to $23.0 million in 1997. Retail sales increased 50.0% from $18.2 million
in 1996 to $27.2 million in 1997 and warehouse club sales increased 43.2% from
$7.9 million in 1996 to $11.3 million in 1997. These increases resulted from
increased distribution and expansion of product lines facilitated primarily by
the Company's acquisition of Simply Fresh effective March 31, 1996 and the
addition of new customers, particularly in the Northeast U.S. in August, 1996.
In addition, growth of existing product lines and new canned product
introductions contributed to these increases in 1997.
The increase in net sales was adversely impacted by a decline in sales of
the Company's specialty food ingredient products in the Japanese market. Sales
to Japan decreased from $7.4 million in 1996 to $3.4 million in 1997 primarily
as a result of decreased demand in Japan for the Company's specialty food
ingredient products. The Company believes that this decrease in demand is due to
a decline in sales of the Japanese products containing the Company's specialty
food ingredients and resulting higher than anticipated inventory levels of the
Company's specialty food ingredients held by distributors in Japan. Present
indications are that inventory levels in Japan have been reduced. Based upon
present indications from Japan, the Company anticipates selling approximately
$5.0 million of specialty food ingredient products to Japan during the 1997-98
citrus processing season. In addition, the Company has delivered IQF product to
Japan and the United Kingdom for evaluation. The Company believes there are
significant opportunities in the Japanese and United Kingdom markets for frozen
citrus and tropical fruit products.
The increase in net sales was also positively impacted by a 10.5% increase
in citrus juice and oil sales from $12.4 million in 1996 to $13.7 million in
1997. The Company acquired GISE, a citrus juice and oil processor in Mexico
effective March 31, 1996, therefore the 1996 sales amount represents only nine
months of operations compared with twelve months of operations in 1997.
Gross profit as a percentage of net sales decreased from 28.6% in 1996 to 27.1%
in 1997. The Company's results of operations were adversely impacted by an
increase in inflation in Mexico (15.7%) which was not offset by a corresponding
devaluation of the Mexico peso (2.5%), resulting in increased
15
<PAGE> 16
wages, benefits and other operating expenses in US dollar terms. Gross profit on
cut fruit sales decreased from 31.0% in 1996 to 29.8% in 1997 while gross profit
on citrus juice and oil sales decreased from 18.1% in 1996 to 13.7% in 1997. The
decrease in gross profit on cut fruit sales resulted primarily from charges of
approximately $3.1 million in the fourth quarter of 1997 for additional costs
incurred associated with the closing of the Flavor Fresh, San Rafael and Zamora
plant facilities and the restructuring of production, warehousing and
distribution operations.
Gross profit on cut fruit sales was adversely affected from the decline in
Japanese sales. Although the loss of Japanese production volume adversely
impacted the Company's 1997 operating results, the Company has taken affirmative
steps to replace the lost production volume. During 1997, these efforts included
the introduction of new canned product lines that accounted for approximately
$2.5 million of sales. In addition, the Company has implemented significant
operational changes to reduce costs, increase efficiency and improve
profitability and continues to evaluate and assess further changes to improve
operational efficiency. See "Restructuring Initiatives."
Gross profit on citrus juice and oil sales were adversely affected by lower
than expected market prices but benefited from improved raw material costs.
Frozen concentrate orange juice futures prices remained depressed throughout
1997 but have shown favorable improvement in early 1998.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales increased from 27.0% in 1996 to 34.4% in 1997. This increase resulted
primarily from charges of approximately $1.2 million in the fourth quarter of
1997 for costs associated with the closing of the Flavor Fresh, Zamora and San
Rafael plant facilities and certain licensing and product development costs.
SG&A as a percentage of net sales was also adversely impacted by the
relative decrease in sales to Japan and juice and oil sales. Sales of the
Company's specialty food ingredient products are facilitated through independent
Japanese trading companies primarily on an FOB ICMOSA plant basis. The Company's
orange juice products are primarily sold direct to juice blenders primarily on
an FOB GISE plant basis. Therefore, the Company does not typically incur
delivery costs and sales commissions with respect to these sales. Consequently,
the relative decrease in these sales from 30.3% to 21.0% of net sales in 1996
and 1997, respectively, adversely impacted SG&A as a percentage of sales during
1997.
Interest expense increased from 2.2% of net sales in 1996 to 4.1% in 1997.
Actual interest expense increased from $1.4 million in 1996 to $3.3 million in
1997. This increase was primarily the result of increased levels of debt
necessary to support capital expenditures and increased levels of inventory and
trade receivables associated with the increase in sales volume.
Interest income of $548,000 was earned in 1996 and $436,000 in 1997
primarily from the temporary cash investment of excess cash balances.
A foreign currency translation net loss of $248,000 in 1996 and $944,000 in
1997 resulted primarily from the conversion of Company's foreign subsidiaries'
financial statements to U.S. GAAP.
Income taxes. A consolidated income tax benefit of $272,000 in 1996 resulted
primarily from the recognition of future benefits from tax losses generated. A
consolidated income tax provision of $77,000 resulted primarily from the
recording of a valuation allowance to reduce the carrying amount of the
Company's deferred tax assets related to U.S. tax losses.
Extraordinary gains, net of applicable taxes, of $330,000 and $139,000 were
realized in 1996 and 1997, respectively. In 1996, the Company reported a net
gain from the forgiveness of certain existing debt obligations with Mexican
banks pursuant to Mexican government programs to stimulate the economy and
support the banking system. In May, 1997, ICMOSA retired certain outstanding
long-term debt with Union de Credito Allende, a Mexican credit union, at a
discount of 50%. The discount was granted pursuant to a Mexican government
program, Acuerdo de Apoyo Financiero y Fomento a la Micro, Pequena
16
<PAGE> 17
y Mediana Empresa ("FOPIME") and through the participation of Nacional
Financiera ("NAFINSA"), a Mexican development bank, to help provide liquidity to
the Mexican credit unions. The debt reduction amounted to approximately $2.0
million pesos or approximately US $248,000. Provisions for Mexican income taxes
and statutory employee profit sharing of 34% and 10%, respectively, have been
provided on these gains from debt forgiveness.
As a result of the foregoing, the Company reported net income of $543,000 in
1996 while reporting a net loss of $9.7 million in 1997.
Years Ended December 31, 1995 and 1996
Net sales increased 76.7% from $36.9 million in 1995 to $65.2 million in
1996. This increase was primarily due to increases in foodservice sales, the
commencement of citrus juice and oil sales and growth in retail sales.
Foodservice sales increased from $861,000 in 1995 to $15.1 million in 1996. This
increase was primarily a result of the Simply Fresh Acquisition and the addition
of new customers. Also in 1996, the Company acquired GISE, a citrus juice and
oil processor in Mexico. Citrus juice and oil sales totaled $12.3 million in
1996. Retail sales increased 45.6% from $12.5 million in 1995 to $18.2 million
in 1996 primarily as a result of increased distribution and demand for the
Company's retail chilled fruit product line.
The increase in net sales was adversely impacted by a decline in sales of
the Company's specialty food ingredient products in the Japanese market. Sales
to Japan decreased 38.8% from $12.1 million in 1995 to $7.4 million in 1996
primarily as a result of decreased demand in Japan for the Company's specialty
food ingredient products. The Company believes that this decrease in demand was
due to a decline in sales of the Japanese products containing the Company's
specialty food ingredients and resulting higher than anticipated inventory
levels of the Company's specialty food ingredients held by distributors in
Japan. Although the Company anticipates a continued decline in sales of its
specialty food ingredient products to Japan during fiscal 1997, the Company
believes there are significant opportunities in the Japanese market for frozen
citrus and tropical fruit products because such products do not contain
additives or preservatives, an important feature for entry into the Japanese
market.
Gross profit as a percentage of net sales decreased from 34.4% in 1995 to
28.6% in 1996. Gross profit on cut fruit sales decreased from 34.4% in 1995 to
31.0% in 1996 while gross profit on citrus juice and oil sales was 18.1% in
1996. The decline in gross profit on cut fruit sales resulted primarily from
increased processing costs due to, among other things, lower than anticipated
production volume resulting from the decline in Japanese sales, increased raw
materials costs and operational inefficiencies associated with the delay in
integrating the Company's new facilities into its existing operations. Although
the loss of Japanese production volume is anticipated to adversely impact the
Company's first quarter 1997 operating results, the Company is taking
affirmative steps to replace the lost production volume. In addition, the
Company believes that the integration of its newly acquired United States
production facilities with its existing operations will be completed in 1997.
Gross profit on citrus juice and oil sales in 1996 were adversely affected
by a significant decline in market prices and increased production costs. During
the fourth quarter of 1996, frozen concentrate orange juice futures prices
declined approximately 30% primarily as a result of favorable production
forecasts from Brazil and Florida. In addition, the Company experienced
increased fruit prices and reduced production yields as a result of the drought
in northern Mexico in the summer of 1996. While the Company's increased costs of
inventories is estimated to adversely impact operations in the first quarter of
1997, citrus juice and oil operating profits are anticipated to improve over the
remainder of 1997 because of improved raw material costs.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales increased from 22.9% in 1995 to 27.0% in 1996. This increase is primarily
the result of increased sales and marketing expenses associated with the
commencement of operations in Massachusetts, and increased general and
administrative expenses associated with the Acquisitions. Presently, the Company
is consolidating and integrating its United States administrative and accounting
functions. This restructuring is expected to positively impact SG&A.
17
<PAGE> 18
Interest expense increased from 0.9% of net sales in 1995 to 2.2% in 1996.
Actual interest expense increased from $318,000 in 1995 to $1.4 million in 1996.
This increase was primarily the result of increased levels of debt necessary to
support increased levels of inventory and trade receivables associated with the
increase in sales volume and distribution centers.
Interest income of $470,000 was earned in 1995 primarily from the temporary
cash investment of proceeds from the exercise of warrants and excess cash
balances generated from operations, while $548,000 of interest income was earned
in 1996 primarily from the temporary cash investment of proceeds from the
Company's secondary public offering .
A foreign currency translation net gain of $124,000 in 1995 and a net loss
of $248,000 in 1996 resulted from the conversion of ICMOSA's and GISE's Mexican
financial statements to U.S. GAAP.
An extraordinary gain recognized on the forgiveness of debt in Mexico, net
of applicable income and employee profit sharing taxes of $289,000, resulted in
a net gain of $330,000 in 1996.
Net income, as a result of the foregoing, decreased from $2.9 million in
1995 to $543,000 in 1996.
STATUTORY EMPLOYEE PROFIT SHARING
All Mexican companies are required to pay their employees, in addition to
their agreed compensation benefits, profit sharing in an aggregate amount equal
to 10% of net income, calculated for employee profit sharing purposes, of the
individual corporation employing such employees. All of UniMark's Mexican
employees are employed by its subsidiaries, each of which pays profit sharing in
accordance with its respective net income for profit sharing purposes. Tax
losses do not affect employee profit sharing. Statutory employee profit sharing
expense is reflected in the Company's cost of goods sold and selling, general
and administrative expenses, depending upon the function of the employees to
whom profit sharing payments are made. The Company's net income on a
consolidated basis as shown in the Consolidated Financial Statements is not a
meaningful indication of net income of the Company's subsidiaries for profit
sharing purposes or of the amount of employee profit sharing. Provisions for
Mexican employee profit sharing expense were $338,000, $436,000 and $544,000 in
1995, 1996 and 1997, respectively.
EXCHANGE RATE FLUCTUATIONS
The Company procures and processes substantially all of its products in
Mexico, through its wholly owned subsidiaries ICMOSA and GISE, for export to the
United States, Canada, Europe and Japan. Generally, the cost of citrus procured
in Mexico reflects the spot market price for citrus in the United States. All of
UniMark's sales are denominated in U.S. dollars. As such, UniMark does not
anticipate sales revenues and raw material expenses to be materially affected by
changes in the valuation of the peso. Labor and certain other production costs
are peso denominated. Consequently, these costs are impacted by fluctuations in
the value of the peso relative to the U.S.
dollar.
The Company's consolidated results of operations are affected by changes in
the valuation of the Mexican peso to the extent that ICMOSA or GISE has peso
denominated net monetary assets or net monetary liabilities. In periods where
the peso has been devalued in relation to the U.S. dollar, a gain will be
recognized to the extent there are peso denominated net monetary liabilities
while a loss will be recognized to the extent there are peso denominated net
monetary assets. In periods where the peso has gained value, the converse would
be recognized.
The Company's consolidated results of operations are also subject to
fluctuations in the value of the peso as they affect the translation to U.S.
dollars of ICMOSA's net deferred tax assets or net deferred tax liabilities.
Since these assets and liabilities are peso denominated, a falling peso results
in a transaction loss
18
<PAGE> 19
to the extent there are net deferred tax assets or a transaction gain to the
extent there are net deferred tax liabilities.
SEASONALITY
Demand for UniMark's citrus and tropical fruit products is strongest during
the fall, winter and spring when seasonal fresh products such as mangos,
peaches, plums, and nectarines are not readily available for sales in
supermarkets in North America. In addition, a substantial portion of UniMark's
exports to Japan is processed and shipped during the first and fourth quarter
each year. Management believes UniMark's quarterly net sales will continue to be
impacted by this pattern of seasonality.
YEAR 2000 ISSUES
The Company has completed an initial review of the impact of the year 2000
on its operations and data processing and does not anticipate that the year 2000
issue will have a significant adverse impact. The Company is currently
implementing new software and computer systems that are year 2000 compliant at
an estimated project cost of $625,000. This implementation is expected to be
completed by January, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, cash and cash equivalents totaled $1.2 million, a
decrease of $3.0 million from year end 1996. During 1997, operating activities
utilized cash of $14.3 million primarily to finance a $6.3 million increase in
inventories, a $2.3 million increase in trade receivables and other operating
activities of $5.7 million.
During the second half of 1997, the Company initiated several changes in its
US and Mexico operations to improve production efficiencies and return the
Company to profitability. These measures are expected to positively impact the
Company's operating results in 1998. Finished goods inventories increased $3.2
million as a result of the increased sales volume while maintaining a turnover
rate of 3.8 times in both 1996 and 1997. Inventory costs associated with the
Company's orchards increased $1.6 million in 1997 as the Company continues to
expand its agricultural operations in Mexico. Trade accounts receivable also
increased as the result of the increased sales volume while maintaining a
turnover rate of 7.0 in 1997 as compared to 7.1 in 1996.
During 1997, UniMark utilized cash of $12.8 million in investing activities.
Of this amount, $11.6 million was expended on property, plant and equipment and
$1.0 million was advanced on behalf of related parties. In March, 1997, the
Company purchased a warehouse and distribution facility located in McAllen,
Texas for a total cash consideration of approximately $1.2 million. In
connection therewith, the Company entered into a construction loan agreement
with Texas State Bank for approximately $2.1 million collateralized by the
property and improvements and guaranteed by the Company. The Company expended
approximately $1.6 million on capital improvements to the property and commenced
operations from the property in August, 1997. Also during 1997, the Company
expended $7.9 million on plant facilities and improvements, equipment and land
in Mexico. During 1997, the Company completed the acquisition of a juice
processing facility located in Poza Rica, Veracruz for approximately $3.1
million.
Effective January 1, 1995, the Company entered into a five year operating
agreement with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to
operate a freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant
to the terms of the operating agreement, the Company is obligated to pay IHMSA
an operating fee sufficient to cover the interest payments on IHMSA's existing
outstanding debt. Since, under the terms of the operating agreement, the Company
would benefit from the reduction of IHMSA's debt, the Company elected to advance
funds to IHMSA to retire certain of its outstanding debt. In May, 1997 the
Company advanced funds to IHMSA to retire its outstanding debt with Union de
Credito Allende in the amount of $1.2 million at a discount of 50% through
programs available in Mexico for debt reduction. During the five year term of
the operating agreement, the Company has the
19
<PAGE> 20
right of first refusal to buy the IHMSA facility at its then fair market value.
At December 31, 1997 amounts due from IHMSA of $1,465,000 represent cash
advances applied to reduce IHMSA's outstanding debt. This amount is expected to
be applied to the purchase price when, and if, the Company elects to exercise
its purchase option.
The Company's financing activities provided net cash of $23.0 million from
additional short-term borrowings and $2.6 million from additional long-term
borrowings, primarily the McAllen warehouse mortgage loan of $2.1 million. Cash
was utilized to reduce long-term debt by $1.7 million in 1997.
The Company received cash proceeds of $1.0 million from additional unsecured
short-term borrowings from Bancrecer in Mexico. In connection therewith, the
Company renegotiated the renewal term of its outstanding $4.0 million of
unsecured debt with Bancrecer from three months to eighteen months.
During 1997, the Company entered into loan agreements with Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") to provide
short-term dollar denominated debt of up to $34.5 million. In February, the
Company entered into a revolving credit agreement to provide up to $9.5 million
(as amended) in the United States collateralized by US finished goods
inventories and US accounts receivable. In April, the Company entered into
additional revolving credit agreements to provide up to $15.0 million (as
amended) in Mexico collateralized by Mexico finished goods inventories and
Mexico accounts receivable from export sales. In May, the Company entered into a
loan agreement for short-term dollar denominated debt in Mexico of up to $10.0
million to partially finance investments in plants, expansion and upgrading of
facilities and agricultural operations. This bridge loan is collateralized by
land and improvements and equipment in Mexico.
These agreements are cross-collateralized and guaranteed by the Company and
its subsidiaries and require the Company to maintain certain consolidated
financial performance levels relative to tangible net worth, working capital,
total debt and debt service. In addition, the agreements contain restrictions on
the issuance of additional shares of stock and the payment of dividends, among
other things, without the prior written consent of the bank. At December 31,
1997 the Company was in violation of certain financial covenants and
restrictions under these agreements, which Rabobank Nederland has waived as of
that date and has established new financial covenant levels and restrictions for
1998. Among the new restrictions, the Company will be charged a $25,000 monthly
fee in the event the $10.0 million bridge loan facility is not paid in full by
July 31, 1998. At December 31, 1997, the Company had outstanding loan balances
under the revolving credit agreements and bridge loan agreement of $19.2 and
$10.0 million, respectively, which were fully utilized. These agreements are
now scheduled to mature on January 1, 1999.
During 1997, the Company has relied upon bank financing, principally short
term, to finance its working capital and certain of its capital expenditure
needs. Although these loan facilities with Rabobank Nederland have been extended
until January 1, 1999, no assurances can be given that Rabobank Nederland will
continue to renew such loan facilities. Presently, the Company is in discussions
with Rabobank Nederland and other financial institutions to extend or replace
existing working capital facilities and to establish a permanent long-term debt
facility to replace the bridge loan. Although no assurances can be given, the
Company believes it will be able to obtain such working capital and long-term
debt facilities on terms acceptable to the Company. The failure to obtain such
facilities would have a material adverse affect on the Company and its ability
to continue as a going concern.
In May, 1997, ICMOSA retired approximately $500,000 of outstanding long-term
debt with Union de Credito Allende, a Mexican credit union, at a discount of
50%. The discount was granted pursuant to a Mexican government program, Acuerdo
de Apoyo Financiero y Fomento a la Micro, Pequena y Mediana Empresa ("FOPIME")
and through the participation of Nacional Financiera ("NAFINSA"), a Mexican
development bank, to help provide liquidity to the Mexican credit unions.
In October, 1996, GISE and The Coca-Cola Export Corporation ("Coca-Cola"),
an affiliate of The Coca-Cola Company, entered into a ten year Supply Contract,
with a ten year renewal option, for the
20
<PAGE> 21
production of Italian lemons. Pursuant to the terms of this Supply Contract,
GISE will plant and grow approximately 12,000 acres of Italian lemons for sale
to Coca-Cola at pre-determined prices. The Supply Contract requires Coca-Cola to
provide, free of charge, 750,000 lemon trees, enough to plant approximately
7,200 acres. In addition, the Supply Contract requires Coca-Cola to purchase all
the production from the project. The planting program began in November, 1996
and is scheduled to be completed in February, 2000 with harvesting of the first
crops to begin in late 1998. The Company estimates that this project will
require capital expenditures of $4.5 million in 1998. The total capital
requirements for the project is estimated to be approximately $27.0 million over
the next four years. Presently, the Company is exploring various financing
alternatives for this project. There can be no assurances that financing for
this project can be obtained on acceptable terms, or at all. The inability to
obtain third party financing for the project could have a material adverse
effect on the Company.
The Company's cash requirements for 1998 and beyond will depend primarily
upon the level of sales, expenditures for capital equipment and improvements,
investments in agricultural projects, the timing of inventory purchases, the
success of newly introduced products and necessary reductions of debt.
Presently, the Company is in discussions with Rabobank Nederland and other
financial institutions regarding extending or replacing its existing debt
facilities. Although no assurances can be given, the Company believes it will be
able to obtain such debt facilities on terms acceptable to the Company. The
failure to obtain such debt facilities would have a material adverse affect on
the Company. UniMark believes that anticipated revenue from operations and
existing and future debt facilities will be adequate for its working capital
requirements for at least the next twelve months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors .................................... 22
Consolidated Balance Sheets as of December 31, 1996 and
1997 .......................................................... 23
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997 .............................. 24
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997 .............................. 25
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 .............................. 26
Notes to Consolidated Financial Statements ........................ 27
</TABLE>
21
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
The UniMark Group, Inc.
We have audited the accompanying consolidated balance sheets of The UniMark
Group, Inc. (the Company) as of December 31, 1996 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The UniMark Group, Inc. at December 31, 1996 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Dallas, Texas
March 27, 1998
22
<PAGE> 23
THE UNIMARK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $4,268 $1,237
Accounts receivable -- trade, net of allowance of $142 in
1996 and $685 in 1997..................................... 9,244 11,599
Accounts receivable -- other................................. 758 716
Inventories.................................................. 19,411 25,726
Income and value added taxes receivable...................... 1,418 2,312
Deferred income taxes........................................ 196 --
Prepaid expenses............................................. 771 1,605
------- -------
Total current assets................................. 36,066 43,195
Property, plant and equipment, net of accumulated
depreciation of $2,712 in 1996 and $5,227 in 1997............ 29,177 38,130
Deferred income taxes.......................................... 373 1,847
Goodwill....................................................... 6,787 6,606
Identifiable intangible assets................................. 2,320 1,823
Due from related parties....................................... 632 1,678
Other assets................................................... 1,328 1,337
------- -------
Total assets......................................... $76,683 $94,616
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings........................................ $12,604 $31,452
Current portion of long-term debt............................ 1,114 1,655
Accounts payable -- trade.................................... 4,466 3,983
Payable to related parties................................... 106 104
Accrued expenses............................................. 2,108 4,439
Income taxes payable......................................... -- 40
Deferred income taxes........................................ 3,915 6,050
------- -------
Total current liabilities............................ 24,313 47,723
Long-term debt, less current portion........................... 4,332 8,626
Deferred income taxes.......................................... 238 15
Commitments
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares -- 20,000,000
Issued and outstanding shares -- 8,561,333 in 1996 and
8,598,833 in 1997....................................... 86 86
Additional paid-in capital................................... 45,287 45,419
Retained earnings (deficit).................................. 2,427 (7,253)
------- -------
Total shareholders' equity........................... 47,800 38,252
------- -------
Total liabilities and shareholders' equity........... $76,683 $94,616
======= =======
</TABLE>
See accompanying notes.
23
<PAGE> 24
THE UNIMARK GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales ............................................. $ 36,866 $ 65,238 $ 81,284
Cost of products sold ................................. 24,192 46,612 59,280
-------- -------- --------
12,674 18,626 22,004
Selling, general and administrative expenses .......... 8,423 17,599 27,954
-------- -------- --------
Income (loss) from operations ......................... 4,251 1,027 (5,950)
Other income (expense):
Interest expense .................................... (318) (1,407) (3,294)
Interest income ..................................... 470 548 436
Foreign currency transaction gain (loss) ............ 124 (248) (945)
Other income ........................................ 98 21 11
-------- -------- --------
374 (1,086) (3,792)
-------- -------- --------
Income (loss) before income taxes and
extraordinary gain ................................. 4,625 (59) (9,742)
Income tax expense (benefit) .......................... 1,678 (272) 77
-------- -------- --------
Income (loss) before extraordinary gain ............... 2,947 213 (9,819)
Extraordinary gain on forgiveness of debt, net of
applicable income taxes of $259 in 1996 and
$109 in 1997 ....................................... -- 330 139
-------- -------- --------
Net income (loss) ..................................... $ 2,947 $ 543 $ (9,680)
======== ======== ========
Basic earnings (loss) per share:
Income (loss) before extraordinary item ............. $ 0.57 $ 0.03 $ (1.15)
Extraordinary item .................................. .-- 0.04 0.02
-------- -------- --------
Net income (loss) ................................... $ 0.57 $ 0.07 $ (1.13)
======== ======== ========
Diluted earnings (loss) per share:
Income (loss) before extraordinary item ............. $ 0.53 $ 0.03 $ (1.15)
Extraordinary item .................................. .-- 0.04 0.02
-------- -------- --------
Net income (loss) ................................... $ 0.53 $ 0.07 $ (1.13)
======== ======== ========
</TABLE>
See accompanying notes.
24
<PAGE> 25
THE UNIMARK GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
SHARES STOCK CAPITAL (DEFICIT) TOTAL
--------- ------ ------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 ....................... 4,650,000 $47 $ 7,408 $(1,063) $ 6,392
Exercise of warrants and options, net
of offering expenses ........................ 1,268,050 12 5,627 -- 5,639
Net income ..................................... -- -- -- 2,947 2,947
--------- --- ------- ------- --------
Balance at December 31, 1995 ..................... 5,918,050 59 13,035 1,884 14,978
Exercise of warrants and options ............... 64,250 1 305 -- 306
Shares issued for cash in secondary
public offering, net of offering
expenses ..................................... 1,677,000 17 22,175 -- 22,192
Shares issued in acquisitions of GISE,
Simply Fresh and Deli-Bon .................... 902,033 9 9,772 -- 9,781
Net income ..................................... -- -- -- 543 543
--------- --- ------- ------- --------
Balance at December 31, 1996 ..................... 8,561,333 86 45,287 2,427 47,800
Exercise of options ............................ 37,500 -- 132 -- 132
Net loss ....................................... -- -- -- (9,680) (9,680)
--------- --- ------- ------- --------
Balance at December 31, 1997 ..................... 8,598,833 $86 $45,419 $(7,253) $ 38,252
========= === ======= ======= ========
</TABLE>
See accompanying notes.
25
<PAGE> 26
THE UNIMARK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .......................................... $ 2,947 $ 543 $ (9,680)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization .......................... 495 1,751 3,465
Deferred income taxes .................................. 1,406 408 634
Extraordinary gain ..................................... -- (589) (248)
Changes in operating assets and liabilities:
Receivables ......................................... (1,793) (3,348) (2,313)
Inventories ......................................... (3,280) (8,927) (6,315)
Prepaid expenses .................................... (192) (351) (834)
Accounts payable and accrued expenses ............... 3,615 (2,263) 1,846
Income taxes payable ................................ (112) (16) (854)
------- -------- --------
Net cash provided by (used in) operating activities ........ 3,086 (12,792) (14,299)
INVESTING ACTIVITIES
Acquisition of Deli-Bon, GISE and Simply Fresh shares,
net of cash acquired .................................... -- (2,590) --
Purchases of property, plant and equipment ................. (5,209) (13,158) (11,578)
(Increase) decrease in identifiable intangible assets ...... -- (919) 89
Decrease (increase) in amounts due from related parties .... 199 (542) (1,046)
Increase in other assets ................................... (14) (1,194) (260)
------- -------- --------
Net cash used in investing activities ...................... (5,024) (18,403) (12,795)
FINANCING ACTIVITIES
Net proceeds from the issuance of common shares ............ 5,639 22,498 132
Net increase in short-term borrowings ...................... 2,305 6,303 22,982
Proceeds from long-term debt ............................... -- 1,204 2,613
Payments of long-term debt ................................. (523) (828) (1,664)
------- -------- --------
Net cash provided by financing activities .................. 7,421 29,177 24,063
------- -------- --------
Net increase (decrease) in cash and cash equivalents ....... 5,483 (2,018) (3,031)
Cash and cash equivalents at beginning of year ............. 803 6,286 4,268
------- -------- --------
Cash and cash equivalents at end of year ................... $ 6,286 $ 4,268 $ 1,237
======= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid ............................................ $ 289 $ 1,049 $ 3,170
======= ======== ========
Income taxes paid (received) ............................. $ 521 $ (98) $ (470)
======= ======== ========
</TABLE>
See accompanying notes.
26
<PAGE> 27
THE UNIMARK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The Company is in the business of growing,
processing, marketing and distributing niche citrus and tropical fruit products,
including chilled and canned cut fruits, citrus juices and oils and other
specialty food ingredients.
During 1996, the Company acquired Les Produits Deli-Bon Inc. (Deli-Bon), a
Quebec, Canada fruit processor; Grupo Industrial Santa Engracia, S.A. de C.V.
(GISE), a Mexican citrus juice and oil processor; and Simply Fresh Fruit, Inc.
(Simply Fresh), a Los Angeles, California fruit processor and distributor. See
Note 3 - Acquisitions.
The UniMark Group, Inc. ("the Company") was incorporated in the state of
Texas on January 3, 1992. During the period from January 3, 1992 (inception)
through December 31, 1992, 3,000,000 shares of the Company's common stock were
exchanged for the issued and outstanding common shares of UniMark Foods, Inc.,
which was owned by the same shareholders as the Company. Since the companies
were under common control, the transaction was accounted for using historical
costs. Additionally, 800 shares of common stock of UniMark International, Inc.
were acquired for $800 during that same period, giving the Company an 80%
interest which was increased to a 100% interest with the acquisition of the
remaining 200 shares during 1994. On August 11, 1994, 1,300,950 shares of the
Company's common stock were exchanged for all of the issued and outstanding
common shares of Industrias Citricolas de Montemorelos, S.A. de C.V. ("ICMOSA"),
a Mexican corporation. The transaction was accounted for in a manner similar to
a pooling-of-interests using historical costs and, accordingly, the accompanying
financial statements include the accounts and operations of ICMOSA for all
periods presented.
As discussed in Notes 9 and 17, the Company has several projects and
commitments requiring substantial capital. Although the Company is exploring
various financing options and believes sufficient capital will ultimately be
available, there can be no assurances that adequate financing or capital can be
obtained on acceptable terms or at all. The inability to obtain sufficient debt
or equity capital for these projects and commitments could have a material
adverse effect on the Company and its projects including the realization of the
amounts capitalized and costs deferred related to these projects and
commitments.
Additionally, the Company has recently relied upon bank financing to finance
its working capital and certain of its capital expenditure needs (see Notes 7
and 8). Although the principal loan facilities have been extended until January
1, 1999, no assurances can be given that the lender will continue to renew such
loan facilities. The Company's cash requirements for 1998 and beyond will depend
primarily upon the level of sales, expenditures for capital equipment and
improvements, investments in agricultural projects, the timing of inventory
purchases, the success of newly introduced products and necessary reductions of
debt. Presently, the Company is in discussions with is primary lender and other
financial institutions regarding extending or replacing its existing debt
facilities. Although no assurances can be given, the Company believes it will be
able to obtain such debt facilities on terms acceptable to the Company. The
failure to obtain such debt facilities would have a material adverse affect on
the Company.
Principles of Consolidation: The consolidated financial statements include
the accounts of The UniMark Group, Inc. and its subsidiaries, all of which are
wholly owned. All significant intercompany accounts and transactions have been
eliminated.
Foreign Operations: A significant portion of the Company's operations are
located in Mexico and a significant portion of the Company's fruit is procured
in Mexico. In addition, substantially all of the
27
<PAGE> 28
Company's Mexican employees are affiliated with labor unions. As is typical in
Mexico, wages are renegotiated every year while other terms are negotiated every
two years. Recently, Mexico has faced turbulent political and economic times.
Should political unrest spread or political leadership or other causes vastly
change economic conditions in Mexico, the Company's operations could be
adversely affected.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with
original maturities of three months or less when purchased to be cash
equivalents.
Concentration of Credit Risk: The Company manufactures and sells niche
citrus and tropical fruit products, citrus juices and oils and other specialty
food ingredients to customers in the foodservice and retail industries in the
United States, Europe, Canada and Japan. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Trade receivables generally are due within 30 days. Credit losses
have been within management's expectations. A significant portion of sales has
historically been made to two customers. One customer accounted for 27.5%, 8.9%
and 3.9% and another customer accounted for 17.6%, 8.3% and 6.63% of the
Company's net sales for the years ended December 31, 1995, 1996 and 1997,
respectively.
Advertising Costs: The Company expenses advertising costs as incurred.
Advertising expense was $137,000, $528,000 and $262,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
Inventories: Inventories held in the United States and Canada are carried at
the lower of cost or market using the first-in, first-out method. Mexican
inventories are valued at the lower of cost or market using average cost.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is computed by the straight-line method over the following
lives:
<TABLE>
<S> <C>
Building............................................... 20 years
Machinery and equipment................................ 5-12.5 years
Transportation equipment............................... 5-7 years
Computer equipment..................................... 4-7 years
Office equipment....................................... 5-10 years
Automobiles............................................ 3-5 years
</TABLE>
The Company reviews its property, plant and equipment and other non-current
assets for impairment when changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Impairment is measured as the amount
by which the carrying amount of the asset exceeds the estimated fair value of
the asset less disposal costs.
Foreign Currency Transactions: The functional currency of the Company and
its subsidiaries is the United States dollar. Transactions in foreign currency
are recorded at the prevailing exchange rate on the day of the related
transaction. Assets and liabilities denominated in foreign currency are
remeasured to dollars at the prevailing exchange rate as of the balance sheet
date. Exchange rate differences are reflected in the current year's operations.
Income Taxes: Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
28
<PAGE> 29
Segment Reporting: In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (Statement 131), which is
effective for years beginning after December 15, 1997. Statement 131 establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. Statement 131 is effective
for financial statements for years beginning after December 15, 1997, and
therefore the Company will adopt the new requirements retroactively in 1998.
Management has not completed its review of Statement 131, but does not
anticipate that the adoption of this statement will have a significant effect on
the Company's reported segments.
Reclassifications: Certain prior year items have been reclassified to
conform to the current year presentation in the accompanying financial
statements.
NOTE 2 EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which was required to be adopted on December 31,
1997. In accordance therewith, the Company changed the method previously used to
compute earnings per share and restated all prior period amounts. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options and warrants are excluded. Under the new requirements for
calculating diluted earnings per share, the dilutive effect of stock options and
warrants are calculated based on the average market price of the Company's
common stock during each period utilizing the treasury stock method.
The following table sets forth the computation of basic and diluted earnings
per share for income from continuing operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------ ------ -------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C>
NUMERATOR
Income (loss) before extraordinary gain .......... $2,947 $ 213 $(9,819)
DENOMINATOR
Denominator for basic earnings per share -
weighted average shares ........................ 5,213 7,450 8,590
Effect of dilutive securities:
Employee and director stock options ............ 189 294 --
Warrants ....................................... 169 52 --
------ ------ -------
Dilutive potential common shares ................. 358 346 --
------ ------ -------
Denominator for diluted earnings per share -
weighted average shares adjusted for assumed
conversions .................................... 5,571 7,796 8,590
====== ====== =======
Basic earnings (loss) per share .................. $ 0.57 $ 0.03 $ (1.15)
====== ====== =======
Diluted earnings (loss) per share ................ $ 0.53 $ 0.03 $ (1.15)
====== ====== =======
</TABLE>
NOTE 3 ACQUISITIONS
On January 3, 1996, the Company acquired, in a purchase transaction, all of
the outstanding shares of capital stock of Les Produits Deli-Bon, Inc.
(Deli-Bon), a Quebec corporation that principally processes
29
<PAGE> 30
and sells fruit salads to the food service industry in Canada. The total
consideration given for the purchase of the shares included approximately (i)
$787,000 in cash, (ii) a $49,000 six month promissory note and (iii) 28,510
shares of common stock for an aggregate purchase price of $1.5 million. The
Company's consolidated statement of operations for the year ended December 31,
1996 includes the results of operations of Deli-Bon since the date of the
acquisition. The excess purchase price over the estimated fair value of the net
assets acquired was $303,000 and is being amortized using the straight-line
method over twenty years. Accumulated amortization was $14,000 and $30,000 at
December 31, 1996 and 1997, respectively.
On May 9, 1996, the Company acquired all of the outstanding shares of
capital stock of Simply Fresh Fruit, Inc. (Simply Fresh), in exchange for (i)
$2,500,000 cash, (ii) 90,909 shares of Unimark common stock and (iii) five-year
covenants not to compete totaling $1,000,000 in a purchase transaction for an
aggregate purchase price of $5.0 million. Simply Fresh is a fruit processing and
distribution company located in Los Angeles, California. The Company's
consolidated statement of operations for the year ended December 31, 1996
includes the results of operations of Simply Fresh since April 1, 1996, the
effective date of the acquisition. The excess purchase price over the estimated
fair value of the net assets acquired was $3,359,000 and is being amortized
using the straight-line method over forty years. Accumulated amortization was
$63,000 and $147,000 at December 31, 1996 and 1997, respectively.
In addition, price protection exists on the shares issued in the Deli-Bon
and Simply Fresh acquisitions whereby the Company is required to issue
additional shares (or cash at its discretion) to the sellers in the event of a
decline in the public market value of the UniMark shares below an established
level during the period in which the sellers' shares are restricted from
trading. See Note 17.
Also on May 9, 1996, the Company acquired all of the outstanding shares of
capital stock of Grupo Industrial Santa Engracia, S.A. de C.V. (GISE), in
exchange for 782,614 shares of common stock in a purchase transaction
representing a purchase price of $12 million. In addition, Unimark agreed to pay
up to an additional $8.0 million during the next four years if GISE achieves
certain financial operating targets. GISE operates three juice plants in the
heart of major citrus growing regions in Mexico. The Company's consolidated
statement of operations for the year ended December 31, 1996 includes the
results of operations of GISE since April 1, 1996, the effective date of the
acquisition. The excess purchase price over the estimated fair value of the net
assets acquired was $3,264,000 and is being amortized using the straight-line
method over forty years. Accumulated amortization was $61,000 and $143,000 at
December 31, 1996 and 1997, respectively.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the GISE and Simply Fresh acquisitions had
occurred at the beginning of each year (in thousands, except for per share
amounts).
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996
--------- ---------
<S> <C> <C>
Revenue.................................... $ 62,374 $ 70,743
Income before extraordinary gain........... 4,502 649
Net income................................. 4,502 979
Net income per share (fully diluted)....... $ .67 $ .12
</TABLE>
The above amounts are based upon certain assumptions and estimates which the
Company believes are reasonable. The pro forma results do not necessarily
represent results which would have occurred if acquisitions had actually taken
place at the date and on the basis assumed above.
In August, 1996, the Company commenced plant operations in Lawrence,
Massachusetts after purchasing certain assets in a secured party sale from Fleet
National Bank and entering into a lease
30
<PAGE> 31
agreement with Gato Realty Trust for a fruit processing facility. The Company
purchased certain inventory, equipment, vehicles and intangible assets for a
total cash consideration of approximately $2.4 million. In addition, the Company
entered into a lease agreement for a plant facility with an initial lease term
of six years and monthly rental payments of $18,000. The Company also paid
initial lease costs of approximately $337,000 in cash.
NOTE 4 INVENTORIES
Inventories consist of the following :
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods:
Cut fruits .......................... $10,536 $12,983
Juice and oils ...................... 1,796 2,592
------- -------
12,332 15,575
Orchards and advances to suppliers ..... 4,134 5,718
Raw materials and supplies ............. 2,945 4,433
------- -------
Total ........................ $19,411 $25,726
======= =======
</TABLE>
NOTE 5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land .............................. $ 1,084 $ 1,928
Construction in progress .......... 2,775 2,201
Buildings and improvements ........ 9,364 13,084
Machinery and equipment ........... 18,666 26,144
------- -------
31,889 43,357
Accumulated depreciation .......... 2,712 5,227
------- -------
Total ................... $29,177 $38,130
======= =======
</TABLE>
Depreciation expense was $431,000, $1,263,000 and $2,625,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
NOTE 6 IDENTIFIABLE INTANGIBLE ASSETS
Identifiable intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Covenants not to compete .......... $1,508 $1,508
Tradename ......................... 704 704
Other ............................. 486 351
------ ------
2,698 2,563
Less accumulated amortization ..... 378 740
------ ------
$2,320 $1,823
====== ======
</TABLE>
31
<PAGE> 32
The covenants not to compete relate to the agreements with the former owners
of acquired businesses and are being amortized on a straight-line basis over the
five-year terms of the agreements. The tradename relates to the Flavor Fresh
brand name and is being amortized on a straight-line basis over twenty years.
NOTE 7 SHORT-TERM BORROWINGS
During 1997, the Company entered into loan agreements with a bank to provide
short-term dollar denominated debt of up to $34.5 million. In February 1997, the
Company entered into a revolving credit agreement to provide up to $9.5 million
(as amended) in the United States collateralized by US finished goods
inventories and US accounts receivable. In April 1997, the Company entered into
additional revolving credit agreements to provide up to $15.0 million (as
amended) in Mexico collateralized by Mexico finished goods inventories and
Mexico accounts receivable from export sales. In May 1997, the Company entered
into a bridge loan agreement for short-term dollar denominated debt in Mexico of
up to $10.0 million to partially finance investments in plants, expansion and
upgrading of facilities and agricultural operations. This bridge loan is
collateralized by land and improvements and equipment in Mexico.
These agreements are cross-collateralized and guaranteed by the Company and
its subsidiaries and require the Company to maintain certain consolidated
financial performance levels relative to tangible net worth, working capital,
total debt and debt service. In addition, the agreements contain restrictions on
the issuance of additional shares of stock and the payment of dividends, among
other things, without the prior written consent of the bank. At December 31,
1997 the Company was in violation of certain financial covenants and
restrictions under these agreements, which the lender has waived as of that date
and has established new financial covenant levels and restrictions for 1998.
Among the new restrictions, the Company will be charged a $25,000 monthly fee in
the event the $10.0 million bridge loan facility is not paid in full by July 31,
1998. At December 31, 1997, the Company had outstanding loan balances under the
revolving credit agreements and bridge loan agreement of $19.2 and $10.0
million, respectively, which were fully utilized. These agreements are now
scheduled to mature on January 1, 1999.
In November, 1997, ICMOSA entered into a three year unsecured loan agreement
with a Mexican bank for short-term dollar denominated debt of up to $6.0
million. At December 31, 1997 the outstanding loan balance was $2.0 million
which is scheduled to mature on June 9, 1998.
The weighted average interest rate on short-term borrowings as of December
31, 1997 was 8.6%.
NOTE 8 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank, unsecured; interest at Libor + 5%
payable quarterly, unpaid principal due February 1, 1999 ........... $ -- $ 2,400
Note payable to bank, unsecured; interest at Libor + 5%
payable quarterly, unpaid principal due March 1, 1999 .............. -- 1,600
Note payable to bank, collateralized by McAllen, Texas
warehouse property and improvements; principal and interest
at Prime + .5% payable monthly, unpaid principal and
interest due September 6, 2012 ..................................... -- 2,053
Non-compete covenant obligations totaling $1.5 million,
discounted at 9%, payable monthly through May 1, 2001 ............... 1,327 986
Note payable to bank, collateralized by plant and equipment
in Mexico; principal and interest at 18.5% payable monthly;
unpaid principal and interest due November 25, 2004 ................ 1,243 1,168
Note payable to bank, collateralized by machinery and
equipment in the United States; principal and interest at
8.66% payable in monthly installments of $16,475; unpaid
principal and interest due January 1, 2002 ......................... 800 666
Note payable to bank; collateralized by plant and equipment
in Mexico; principal and interest at Libor + 8% payable
monthly; unpaid principal and interest due December 30, 2001 ....... 759 759
Other notes payable .................................................. 1,317 649
------- -------
5,446 10,281
Less current portion ................................................. 1,114 1,655
------- -------
$ 4,332 $ 8,626
======= =======
</TABLE>
32
<PAGE> 33
Certain of the loan contracts establish restrictions and obligations with
respect to the application of funds and require maintenance of insurance of the
assets and timely presentation of financial information.
All long-term debt at December 31, 1997 is U.S. dollar denominated except
for $1,168,000 which is Mexican peso denominated and $42,000 which is Canadian
dollar denominated.
Based on interest rates provided by the Company's long-term debt and the
floating rates provided on its short-term borrowings, the Company believes the
carrying amounts of its short and long-term debt approximate their fair value.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................... $ 1,655
1999........................................... 4,792
2000........................................... 826
2001........................................... 582
2002........................................... 283
Thereafter..................................... 2,143
--------
$ 10,281
========
</TABLE>
NOTE 9 RELATED PARTY TRANSACTIONS
Effective January 1, 1995, the Company entered into a five year operating
agreement with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to
operate a freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant
to the terms of the operating agreement, the Company is obligated to pay IHMSA
an operating fee sufficient to cover the interest payments on IHMSA's existing
outstanding debt (approximately $4.6 million). The Company is responsible for
all raw material and operating costs and the sale of the finished goods produced
at the IHMSA plant. Payments made pursuant to the operating agreement were
$347,000, $116,000 and $42,000 during the years ended December 31, 1995, 1996
and 1997, respectively. The Vaquero family owns collectively an approximate 8%
interest in IHMSA. Certain members of the Vaquero family are officers,
shareholders and directors of the Company. During the five year term of the
operating agreement, the Company has the right of first refusal to buy the IHMSA
facility at its then fair market value.
The Company has subsequently elected to advance funds to IHMSA to retire
certain of its outstanding debt since, under the terms of the operating
agreement, the Company would benefit from the IHMSA debt reduction. At December
31, 1997 amounts due from IHMSA of $1,465,000 represent cash advances applied to
reduce IHMSA's outstanding debt. This amount is expected to be applied to the
purchase price when, and if, the Company elects to exercise its purchase option.
33
<PAGE> 34
Effective July 1, 1995, the Company entered into a ten year operating
agreement with Empacadora de Naranjas Azteca, S.A. de C.V. ("Azteca"), to
operate a processing plant in Montemorelos, Nuevo Leon, Mexico. The operating
agreement provides for payments in the amount of (i) interest on existing debt
of approximately $220,000 with credit institutions, (ii) asset tax and (iii)
annual property tax. Prior to this time, Azteca "co-packed" chilled grapefruit
sections and mango slices for the Company. During the six-month period ended
June 30, 1995, Azteca co-packed approximately $1.4 million of fruit for the
Company. The Vaquero family owns collectively an approximate 14.3% interest in
Azteca. Payments made pursuant to the operating agreement were $143,000, $1,000
and $61,000 during the years ended December 31, 1995, 1996 and 1997,
respectively. During the term of the operating agreement, the Company has the
right of first refusal to buy the Azteca facility at its then fair market value.
Transactions with related parties are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Sales ........................ $ 379 $ -- $ --
====== =========== ====
Purchases .................... $2,016 $ 121 $190
====== =========== ====
</TABLE>
In November, 1995, the Company entered into a lease agreement with Loma
Bonita Partners, a Texas general partnership, for approximately 200 hectares
(494 acres) of land located in Loma Bonita, Veracruz, Mexico for the development
of citrus groves. The lease commenced in December, 1995 and expires in ten
years. Loma Bonita Partners is 50% owned by an officer, who is also a director
and shareholder of the Company. The Company believes that said lease agreement
is on terms no less favorable to the Company than would be available from
unrelated third parties. Rent expense on this lease was $5,670, $68,870 and
$78,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
P&C Services, Inc. (P&C) is a California corporation owned by officers and
management of Simply Fresh that leased the hourly plant employees to Simply
Fresh. This employee leasing arrangement was terminated in 1997. Payments made
to P&C during 1996 and 1997 amounted to approximately $1.0 million and $741,000,
respectively. The balance payable to P&C at December 31, 1997 represents
non-interest bearing cash advances from P&C to Simply Fresh.
Receivable and payable balances with related parties are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable:
Empacadora de Naranjas Azteca, S.A. de C.V. (Azteca) .......... $ 221 $ 213
Industrias Horticolas de Montemorelos, S.A. de C.V. (IHMSA) ... 320 1,465
Other ......................................................... 91 --
------ ------
$ 632 $1,678
====== ======
Accounts payable:
P&C Services, Inc. ........................................... $ 103 $ 104
Industrias Horticolas de Montemorelos, S.A. de C.V. (IHMSA) ... 3 --
------ ------
$ 106 $ 104
====== ======
</TABLE>
The Company operates a 144 acre grapefruit grove located close to the ICMOSA
plant in Montemorelos pursuant to a ten year operating agreement that expires in
2000. Per the agreement, the Company operates the grove and purchases all the
grapefruit produced at a formula price tied to purchases from unrelated third
parties. The grove is owned by a partnership that consists primarily of
shareholders of Azteca. The Vaquero family owns a 14.3% interest in this
partnership. The Company believes that said arrangement is on terms no less
favorable to the Company than would be available from unrelated third
34
<PAGE> 35
parties. Fruit purchases from the grove were $8,000, $121,000 and $190,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
The Company leases its corporate office facility from a company owned by an
individual who served as the Company's president and was a shareholder of the
Company through February, 1998. Rent expense on this lease was $36,000, $98,250
and $110,700 for the years ended December 31, 1995, 1996 and 1997, respectively.
During 1995, 1996 and 1997, the Company paid Jordaan, Howard and Pennington,
PLLC amounts of $106,145, $299,723 and $179,962, respectively, for legal
services rendered. Mr. Jordaan, a director and, commencing in February, 1998,
chairman of the Company, is a member of Jordaan, Howard & Pennington, PLLC.
NOTE 10 LEASES
The Company leases buildings, various plant facilities, certain equipment
and citrus groves under operating leases. The Isla plant lease is for a period
of ten years, expiring in 2005, and contains a purchase option through July 1,
1998 for $850,000. The San Rafael plant lease is for a period of nine years,
expiring in 2003, and contains the right of first refusal to purchase the
facility at its then fair market value. The Simply Fresh plant lease is for a
period of ten years, expiring in 2004, and contains a purchase option
exercisable from August 15, 1996 through August 14, 1998 for $4.5 to $4.75
million. The plant lease for the Lawrence, MA facility is for an initial period
of six years, expiring in 2002, and contains a purchase option exercisable
during the term of the lease for the then fair market value of the property. The
Company has under lease approximately 926 acres of citrus groves in Mexico for
periods of ten to fifteen years expiring in 2005 and 2010.
As described in Note 9, the Company leases its corporate office facility and
a 494 acre citrus grove from related parties. The related party building lease
expires in 2000, but its term may be renewed for a five-year period. The related
party citrus grove lease expires in 2005.
Future minimum payments under non-cancelable operating leases with initial
terms of one year or more at December 31, 1997, consist of the following:
<TABLE>
<CAPTION>
RELATED
PARTIES OTHER TOTAL
------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
1998............. $ 78 $916 $ 994
1999............. 78 865 943
2000............. 78 874 952
2001............. 78 625 703
2002............. 78 513 591
Thereafter....... 234 943 1,177
</TABLE>
Rent expense was $670,000, $1,159,000 and $1,234,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
35
<PAGE> 36
NOTE 11 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1996 and
1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ............... $ 1,132 $4,332
Inventories .................................... 200 582
Asset tax credit ............................... 975 1,057
Credit available to offset Mexican tax ......... 192 249
Accrued expenses ............................... 156 318
Bad debt reserve ............................... -- 260
Intangible assets .............................. -- 232
Other .......................................... 171 114
------- ------
Total deferred tax assets ........................ 2,826 7,144
Less valuation allowance ......................... -- (2,990)
------- ------
Net deferred tax assets .......................... $ 2,826 $4,154
======= ======
Deferred tax liabilities:
Depreciation ................................... $ 2,251 $2,091
Inventories .................................... 4,003 5,862
Other .......................................... 156 419
------- ------
Deferred tax liabilities ......................... $ 6,410 $8,372
======= ======
</TABLE>
Income (loss) before income taxes and extraordinary gain relating to
operations in the United States and Mexico is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States ...................... $ 364 $(2,749) $(7,102)
Mexico ............................. 4,261 2,690 (2,640)
------- ------- -------
$ 4,625 $ (59) $(9,742)
======= ======= =======
</TABLE>
The components of the provision for income taxes include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. federal -- current ................ $ 198 $(386) $ (76)
U.S. state -- current .................. 31 (48) 14
U.S. deferred .......................... (32) (488) 565
------- ----- -----
197 (922) 503
------- ----- -----
Foreign -- current ..................... 43 127 40
Foreign -- deferred .................... 1,438 523 (466)
------- ----- -----
1,481 650 (426)
------- ----- -----
$ 1,678 $(272) $ 77
======= ===== =====
</TABLE>
36
<PAGE> 37
Principal reconciling items from income tax computed at the U.S. statutory rate
of 34% are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- ----- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision at 34% statutory rate ............. $ 1,573 $ (20) $(3,312)
State income tax (net of federal benefit) ... 21 (103) (228)
Permanent differences ....................... -- (438) 852
Effect of foreign rates ..................... 273 3 (2)
Other ....................................... 22 286 (223)
Change in valuation allowance ............... (211) -- 2,990
------- ----- -------
$ 1,678 $(272) $ 77
======= ===== =======
</TABLE>
The Company has a net operating loss carryforward in the United States of
$4,633,000 which begins to expire in 2011 and in Mexico of $7,628,000 which
begins to expire in 2006. The Mexican subsidiaries have asset tax credits
totaling $1,057,000 available to offset Mexican income tax which begin to expire
in 1999. One Mexican subsidiary also has a job creation credit of $249,000
available to offset income tax in Mexico, which will begin to expire in 2006.
NOTE 12 STOCK OPTIONS
In 1994, the Company adopted an employee stock option plan and an outside
director stock option plan ("the Plans"). In 1997, the Company amended the
employee stock option plan to reserve an additional 340,000 shares of common
stock for issuance thereunder. The Plans authorize the Board of Directors to
grant options to employees and consultants of the Company and to outside
directors of the Company to purchase up to 820,000 shares of common stock under
the employee stock option plan, as amended, and 100,000 shares for the outside
directors stock option plan. The terms and the vesting period of any option
granted under the Plans is fixed by the Board of Directors at the time the
option is granted, provided that the exercise period may not be greater than 10
years from the date of grant. The exercise price of any option granted under the
employee stock option plan shall not be less than 100% and 85% of the fair
market value of the stock on the date of the grant for Incentive Stock Options
and Nonstatutory Stock Options, as defined, respectively. The exercise price of
any option granted under the outside directors stock option plan shall not be
less than 100% of the fair market value of the stock on the date of the grant.
The Company has reserved 820,000 and 100,000 shares for issuance pursuant to the
employee stock option plan and the outside directors stock option plan,
respectively.
<TABLE>
<CAPTION>
EMPLOYEE STOCK OUTSIDE DIRECTORS STOCK
OPTION PLAN OPTION PLAN
---------------------- -----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Options outstanding, January 1, 1995 ........ 220,000 $ 3.50 60,000 $ 3.50
Granted ................................. 163,000 4.61 7,500 7.13
Exercised ............................... (5,000) 3.50 -- .--
------- ------
Options outstanding, December 31, 1995 ...... 378,000 3.98 67,500 3.90
Granted ................................. 12,500 11.30 7,500 17.00
Exercised ............................... (23,500) 3.50 (7,000) 3.50
Forfeited ............................... (5,000) 3.50 -- .--
------- ------
Options outstanding, December 31, 1996 ...... 362,000 4.27 68,000 5.39
Granted ................................. 195,000 7.25 7,500 6.88
Exercised ............................... (37,500) 3.50 -- .--
Forfeited ............................... (5,000) 3.50 -- .--
------- ------
Options outstanding, December 31, 1997 ...... 514,500 5.46 75,500 5.54
======= ======
Exercisable at December 31,
1995 .................................... 50,000 $ 3.50 67,500 $ 3.90
1996 .................................... 117,250 3.89 68,000 5.39
1997 .................................... 181,125 4.13 75,500 5.54
Weighted-average fair value of options
granted during the years ended:
December 31, 1995 ....................... $ 1.87 $ 2.60
December 31, 1996 ....................... 4.51 6.27
December 31, 1997 ....................... 3.10 2.53
</TABLE>
37
<PAGE> 38
Exercise prices for employee options outstanding as of December 31, 1997
ranged from $3.50 to $12.25. The weighted-average remaining contractual life of
those options is 2.5 years. Exercise prices for outside directors options
outstanding as of December 31, 1997 ranged from $3.50 to $17.00. The
weighted-average remaining contractual life of those options is 1.6 years. All
options granted under the outside directors stock option plan are immediately
exercisable. Options issued to employees during 1995, 1996 and 1997 vest ratably
over four years.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee and outside director stock
options because, as discussed below, the alternative fair value accounting
provided for under Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" (FASB 123), requires use of option
valuation models that were not developed for use in valuing stock options. Under
APB 25, because the exercise price of the Company's stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FASB 123 and has been determined as if the Company had accounted for
its stock options under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995,
1996 and 1997, respectively: risk-free interest rates of 7.0%, 5.7% and 6.2%;
dividend yields of 0%, 0% and 0%; volatility factors of the expected market
price of the Company's common stock of .45, .45 and .45; and a weighted-average
expected life of the option of 3.9, 3.5 and 4.0 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
------------ ---------- ------------
<S> <C> <C> <C>
Pro forma net income (loss) ............ $ 2,872 $ 419 $ (9,859)
Pro forma earnings (loss) per share:
Basic .............................. $ 0.55 $ 0.06 $ (1.15)
Diluted ............................ $ 0.52 $ 0.05 $ (1.15)
</TABLE>
38
<PAGE> 39
Because FASB 123 is applicable only to options and stock-based awards
granted subsequent to December 31, 1994, its proforma effect will not be fully
reflected until 1998.
NOTE 13 CAPITAL STOCK
On August 11, 1994, the Company completed an initial public offering of
550,000 units consisting of a total of 1,650,000 shares of its common stock and
1,100,000 Redeemable Common Stock Purchase Warrants ("the Warrants"). The
Warrants were transferable separately from the common stock and entitled the
holder to purchase one share of the Company's common stock at an exercise price
of $4.50 per share. On June 8, 1995 the Company notified all registered holders
of the Warrants of its intention to redeem all of the outstanding Warrants by
July 21, 1995 at a call price of $0.05 per warrant. During 1995, the Company
issued 1,099,990 shares of common stock on the exercise of a like amount of the
Warrants with gross proceeds to the Company of $4,949,955.
In conjunction with the initial public offering on August 11, 1994, the
Company issued warrants to its underwriting representatives ("the
Representatives' Warrants") to purchase up to 55,000 units consisting of a total
of 165,000 shares of its common stock and 110,000 Redeemable Common Stock
Purchase Warrants. The Representatives' Warrants are exercisable for a period of
five years from the offering date at a price per unit of $15.00. The Company
reserved 275,000 shares for issuance upon the exercise of the Representatives'
Warrants and the underlying Redeemable Common Stock Purchase Warrants. During
1995, the Company issued 163,060 shares of common stock on the exercise of
32,612 Representatives' Warrants and the 65,224 underlying Redeemable Common
Stock Purchase Warrants with gross proceeds to the Company of $782,688. During
1996, the Company issued 33,750 shares of common stock on the exercise of 6,750
Representatives' Warrants and the 13,500 underlying Redeemable Common Stock
Purchase Warrants with gross proceeds to the Company of $162,000. At December
31, 1997 there were 15,638 Representatives' Warrants outstanding.
On June 14, 1996, the Company completed its secondary public offering
whereby it sold 1,677,000 shares of its common stock at $14.50 per share with
net proceeds to the company of $22.2 million.
NOTE 14 RESTRICTIONS ON RETAINED EARNINGS
Under the terms of its loan agreements with a bank, the Company may not
declare or pay any dividends on its shares without the bank's prior written
consent.
NOTE 15 SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operations involve a single industry segment; growing,
processing, marketing and distributing citrus and tropical fruit products,
including chilled and canned cut fruits, citrus juices and oils, and other
specialty food ingredients. Financial information, summarized by geographic
location, is as follows:
<TABLE>
<CAPTION>
UNITED STATES
AND CANADA MEXICO ELIMINATIONS CONSOLIDATED
---------- ------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Sales to unaffiliated customers .......... $ 23,898 $ 12,968 $ -- $ 36,866
Transfers between geographic areas ....... -- 12,937 (12,937) --
-------- -------- -------- --------
Total revenue ............................ $ 23,898 $ 25,905 $(12,937) $ 36,866
======== ======== ======== ========
Operating profit ......................... $ 364 $ 4,410 $ (149) $ 4,625
======== ======== ======== ========
Identifiable assets ...................... $ 9,679 $ 17,165 $ (226) $ 26,618
======== ======== ======== ========
Year ended December 31, 1996:
Sales to unaffiliated customers .......... $ 44,118 $ 21,120 $ -- $ 65,238
Transfers between geographic areas ....... 2,733 24,161 (26,894) --
-------- -------- -------- --------
Total revenue ............................ $ 46,851 $ 45,281 $(26,894) $ 65,238
======== ======== ======== ========
Operating profit (loss) .................. $ (2,594) $ 2,939 $ (404) $ (59)
======== ======== ======== ========
Identifiable assets ...................... $ 29,132 $ 39,215 $ 8,336 $ 76,683
======== ======== ======== ========
Year ended December 31, 1997:
Sales to unaffiliated customers .......... $ 65,763 $ 15,521 $ -- $ 81,284
Transfers between geographic areas ....... 4,599 36,173 (40,772) --
-------- -------- -------- --------
Total revenue ............................ $ 70,362 $ 51,694 $(40,772) $ 81,284
======== ======== ======== ========
Operating profit (loss) .................. $ (6,497) $ (2,266) $ (979) $ (9,742)
======== ======== ======== ========
Identifiable assets ...................... $ 30,608 $ 60,862 $ 3,146 $ 94,616
======== ======== ======== ========
</TABLE>
39
<PAGE> 40
NOTE 16 EXTRAORDINARY GAIN
In July, 1996, the Mexican government enacted a new program, Acuerdo Para El
Financiamiento del Sector Attropecuario y Pesquero ("FINAPE"), whereby certain
agricultural and commercial enterprises were eligible for a one time reduction
in their existing debt obligations with Mexican banks as a means of stimulating
the economy and supporting the Mexican banking system. Pursuant to the
provisions of FINAPE, GISE obtained a reduction in its debt principal with
Banamex of $4,000,000 pesos or approximately US $532,000.
In August, 1996, the Mexican government enacted a second program, Acuerdo de
Apoyo Financiero y Fomento a la Micro, Pequena y Mediana Empresa ("FOPIME"), of
debt reduction for other commercial enterprises. Pursuant to the provisions of
FOPIME, ICMOSA obtained a reduction in its debt principal with Union de Credito
Allende of approximately US $57,000.
In May, 1997, ICMOSA retired certain outstanding long-term debt with Union
de Credito Allende, a Mexican credit union, at a discount of 50% granted
pursuant to FOPIME and through the participation of Nacional Financiera, a
Mexican development bank, to help provide liquidity to the Mexican credit
unions. The debt reduction amounted to $2.0 million pesos or approximately US
$248,000.
Provisions for Mexican income taxes and statutory employee profit sharing of
34% and 10%, respectively, have been provided on these gains from debt
forgiveness.
NOTE 17 COMMITMENTS AND CONTINGENCIES
In May, 1996, the Company entered into a non-assignable, exclusive license
and technical assistance agreement with a Japanese company for the right to
manufacture and sell certain fruit products in the US, Canada and Mexico.
Pursuant to the agreement, the Company pays a 3% royalty based on the net sales
of these products, subject to an annual minimum royalty amount, which is
reported and paid quarterly. The agreement is for an initial term of five years
with automatic one year renewals unless terminated by either party. At December
31, 1997 minimum annual royalties of $200,000 are payable through April, 2001.
In October, 1996, GISE and The Coca-Cola Export Corporation ("Coca-Cola"),
an affiliate of The Coca-Cola Company, entered into a ten year Supply Contract,
with a ten year renewal option, for the production of Italian lemons. Pursuant
to the terms of this Supply Contract, GISE will plant and grow approximately
12,000 acres of Italian lemons for sale to Coca-Cola at pre-determined prices.
The Supply Contract requires Coca-Cola to provide, free of charge, 750,000 lemon
trees, enough to plant approximately 7,200 acres. In addition, the Supply
Contract requires Coca-Cola to purchase all the production from the project. The
Company estimates that this project will require capital expenditures of $4.5
million in 1998. The total capital requirements for the project are estimated to
be approximately $27.0 million over the next four years. Presently, the Company
is exploring various financing alternatives for this project. There can be no
assurances that financing can be obtained on acceptable terms, or at all. The
inability to obtain third party financing for this project could have a material
adverse effect on the Company.
40
<PAGE> 41
In December, 1996, the Company entered into a deposit, operation and stock
purchase agreement with the owners of Frutalamo, S.A. de C.V. for the operation
of the Frutalamo juice processing plant. Pursuant to the terms of the agreement,
the Company is to pay a non-refundable guaranty deposit of $1.9 million for the
right to purchase all the issued and outstanding shares of stock of Frutalamo
from its existing shareholders. An initial deposit of $650,000 was paid upon
execution of the agreement with the balance payable in annual installments of
$420,000 each through October 30, 1999. As of December 31, 1997,the deposit
amounted to $950,000. The stock purchase option is exercisable on October 30,
1999 for an additional sum of $6.0 million, with $1.8 million payable at that
time and the balance payable over a five year period with interest at an annual
rate of 7%. Additionally, the agreement requires the Company to pay a
contractual penalty of $1.0 million to the owners of Frutalamo in the event the
agreement is rescinded.
Effective January 1, 1995, the Company entered into a five year operating
agreement with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to
operate a freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant
to the terms of the operating agreement, the Company is obligated to pay IHMSA
an operating fee sufficient to cover the interest payments on IHMSA's existing
outstanding debt. During the five year term of the operating agreement, the
Company has the right of first refusal to buy the IHMSA facility at its then
fair market value. Since, under the terms of the operating agreement, the
Company would benefit from the reduction of IHMSA's debt, the Company elected to
advance funds to IHMSA to retire certain of its outstanding debt. At December
31, 1997 amounts due from IHMSA of $1,465,000 represent cash advances applied to
reduce IHMSA's outstanding debt. This amount is expected to be applied to the
purchase price when, and if, the Company elects to exercise its purchase option.
Presently, the fair market value of the IHMSA plant is approximately $6.5
million and IHMSA has outstanding debt of approximately $3.4 million.
During 1997, the previous owners of Simply Fresh Fruit, Inc. requested that
the common stock price protection provisions of the May 9, 1996 acquisition
agreement be satisfied by the Company. The Company had previously issued 90,909
shares of its common stock in consideration of $1.5 million of the acquisition
purchase price. This request as well as other issues related to the acquisition
agreement are presently the subject of binding arbitration proceedings. The
actual number of additional shares to be issued by the Company, if any, has yet
to be determined.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
41
<PAGE> 42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference from the
section "Directors and Executive Officers" in the Company's 1998 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference from the
sections "Compensation of Executive Officers" and "Compensation of Directors" in
the Company's 1998 Proxy Statement. Information in the section and subsection
titled "Report of the UniMark Group, Inc. Board of Directors Compensation
Committee" and "Performance Graph" is not incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
section "Security Ownership of Principal Shareholders, Directors and Management"
in the Company's 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference from the
sections "Compensation of Executive Officers", "Compensation of Directors" and
"Certain Transactions" in the Company's 1998 Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(1) FINANCIAL STATEMENTS:
See Index to Financial Statements (Item 8).
(2) FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted since they are either not applicable or
the information is contained elsewhere in "Item 8. Financial Statements
and Supplementary Data."
(3) EXHIBITS
42
<PAGE> 43
<TABLE>
<CAPTION>
NUMBER
EXHIBIT EXHIBIT
------- -------
<S> <C>
3.1 Articles of Incorporation of The UniMark Group, Inc., as amended(1)
3.2 Amended and Restated Bylaws of The UniMark Group, Inc.(1)
3.3 Articles of Exchange of The UniMark Group, Inc.(1)
4.1 Specimen Stock Certificate(1)
10.1 The UniMark Group, Inc. 1994 Employee Stock Option Plan(1)
10.2 The UniMark Group, Inc. 1994 Stock Option Plan for Directors(1)
10.3 Stock Exchange Agreement between The UniMark Group, Inc. and the
stockholders of Industrias Citricolas de Montemorelos, S.A. de
C.V.(1)
10.4 Citrus Grove Lease Agreement(1)
10.5 Asset Operating Agreement between the Registrant and Industrias
Horticolas de Montemorelos, S.A. de C.V.(2)
10.6 Lease agreement among Hector Gerardo Castagne Maitret, Carlos
Courturier Arellano, Mauro Alberto Salazar Rangel, Miguel Angel
Salazar Rangel, Alejandrina Trevino Garcia, Gerardo Trevino
Garcia, Jorge Maitret and Industrias Citricolas de Montemorelos,
S.A. de C.V.(2)
10.7 Contract of Purchase and Sale between Empacadora Tropifrescos,
Sociedad Anonima de Capital Variable and Industrias Citricolas de
Montemorelos, S.A. de C.V.(2)
10.8 Lease Agreement between Industrias Citricolas de Montemorelos,
S.A. de C.V. and Valpak, S.A. de C.V. dated July 1, 1995(3)
10.9 Asset Operating Agreement between Industrial Citricolas de
Montemorelos, S.A. de C.V. and Empacadora de Naranjas Azteca, S.A.
de C.V. dated July 1, 1995(3)
10.10 Contract for Operation, Administration, and Purchase and Sale of
Fruit between Industrial Citricolas de Montemorelos, S.A. de C.V.
and Mr. Jorge Croda Manica ("Las Tunas") dated July 1, 1995(3)
10.11 Lease Contract between Industrial Citricolas de Montemorelos, S.A.
de C.V. and Mr. Mauro Alberto Salazar Rangel and Mr. Miguel Angel
Salazar Rangel ("Huerta Loma Bonita") dated 1995(3)
10.12 Unilateral Recognition of Indebtedness and Granting of Revolving
Collateral between Industrial Citricolas de Montemorelos, S.A. de
C.V. and Rabobank Curacao N.V. dated September 20, 1995(3)
10.13 Amended and Restated Stock Purchase Agreement among The UniMark
Group, Inc., 9029-4315 Quebec Inc., Michel Baribeau and Gestion
Michel Baribeau Inc. dated January 3, 1996(4)
10.14 Lease Agreement between Loma Bonita Partners and UniMark Foods,
Inc. dated November 28, 1995(3)
10.15 Lease Agreement between The UniMark Group, Inc. and Grosnez
Partners dated January 1, 1996(3)
10.16 Rural Property Sublease Agreement between Industrial Citricolas de
Montemorelos, S.A. de C.V. and Lorenzo Uruiza Lopez dated October
23, 1995(3)
10.17 Purchase Agreement between Industrial Citricolas de Montemorelos,
S.A. de C.V. and Jose Enrique Alfonso Perez Rodriquez dated
October 23, 1995(3)
10.18 Stock Purchase Agreement between The UniMark Group, Inc. and the
stockholders of Grupo Industrial Santa Engracia dated April 30,
1996(6)
10.19 Stock Purchase Agreement between The UniMark Group,
Inc., UniMark Foods, Inc., Sam Perricone Children's Trust 1972,
Sam Perricone and Mark Strongin dated May 9, 1996(6)
10.20 Employment Agreement by and between Grupo Industrial Santa
Engracia, S.A. de C.V. and Ing Jose Ma. Martinez Brohez dated as
of May 9, 1996(7)
10.21 Lease Agreement by and among Ralphs Grocery Company, Simply Fresh
Fruit, Inc. and Davalon Sales, Inc. dated as of March 1, 1994(7)
10.22 Revolving Credit Agreement by and among UniMark Foods, Inc., The
UniMark Group, Inc., UniMark International, Inc., Simply Fresh
Fruit, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A. dated February 12, 1997. (9)
10.23 Supply Contract between The Coca-Cola Export Corporation
and Grupo Industrial Santa Engracia, S.A. de C.V. dated October 7,
1996. (9)
10.24 Loan Agreement made between Industrias Citricolas de
Montemorelos, S.A. de C.V., Grupo Industrial Santa Engracia, S.A.
de C.V., Agromark, S.A. de C.V., as borrowers; The UniMark Group,
Inc., as guarantor, and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland", as lender,
dated May 29, 1997. (10)
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C>
10.25 Revolving Loan Agreement with Security Interest by and between
Industrias Citricolas de Montemorelos, S.A. de C.V., as borrower,
Grupo Industrial Santa Engracia, S.A. de C.V.
"Gise", Agromark, S.A. de C.V. "Agromark", and Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland" New
York Branch dated April 10, 1997. (10)
10.26 Revolving Loan Agreement with Security Interest by and between
Grupo Industrial Santa Engracia, S.A. de C.V. "Gise", as borrower,
Industrias Citricolas de Montemorelos, S.A. de C.V. "Icmosa",
Agromark, S.A. de C.V. "Agromark", and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland" New York
Branch dated April 10, 1997. (10)
10.27 First Amendment to Revolving Credit Agreement by and among UniMark
Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark
International, Inc., Simply Fresh Fruit, Inc., the guarantors, and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch dated October 7, 1997. (10)
10.28 Second Amendment to Revolving Credit Agreement by and among
UniMark Foods, Inc., the borrower, and The UniMark Group, Inc.,
UniMark International, Inc., Simply Fresh Fruit, Inc., the
guarantors, and Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland", New York Branch dated November 12,
1997. (10)
10.29 Articles of Association of Gisalamo, S.A. de C.V. (11)
10.30 Deposit, Operation, Exploitation and Stock Purchase Option
Agreement by and among The UniMark Group, Inc. and Mr. Francisco
Domenech Tarrago and Mr. Francisco Domenech Perusquia dated
December 17, 1996 (11)
10.31 Gratuitous Loan Agreement by and among Gisalamo, S.A. de C.V. and
Frutalamo, S.A. de C.V. dated December 17, 1996 (11)
10.32 Non-Competition Agreement by and among The UniMark group, Inc. and
Jorn Budde dated February 18, 1998 (12)
21 Subsidiaries of the Registrant (11)
23 Consent of Ernst & Young LLP (11)
27 Financial Data Schedule, year ended December 31, 1997 (11)
27.1 Financial Data Schedule, restated, year ended December 31, 1996
(11)
</TABLE>
- ---------------------
(1) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form SB-2, as amended, SEC Registration No. 33-78352-D.
(2) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994.
(3) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-QSB for the fiscal quarter ended September 30, 1995.
(4) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K dated January 16, 1995.
(5) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995.
(6) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K dated May 10, 1996.
(7) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1, as amended, SEC Registration No. 333-3539.
(8) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996.
(9) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
(10) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1997
(11) Filed herewith.
(12) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K dated February 18, 1998.
---------------------------------------------------------------------------
(4) REPORTS ON FORM 8-K
The Company filed no current reports on Form 8-K during the fourth quarter
ended December 31, 1997.
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
The UniMark Group, Inc.
(Registrant)
By: /s/ Rafael Vaquero Bazan
--------------------------------------
Rafael Vaquero Bazan
President and Chief Executive Officer
Dated: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report was signed below by the following persons on behalf of the registrant and
in the capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jakes Jordaan Director, Chairman March 27, 1998
---------------------------------
Jakes Jordaan
/s/ Rafael Vaquero Bazan President, Chief Executive Officer, March 27, 1998
--------------------------------- Chief Operating Officer and Director
Rafael Vaquero Bazan (Principal Executive Officer)
/s/ Keith Ford Vice-president -- Finance, March 27, 1998
--------------------------------- Secretary and Treasurer (Principal
Keith Ford Financial and Accounting Officer)
/s/ Eduardo Vaquero Bazan Director March 27, 1998
---------------------------------
Eduardo Vaquero Bazan
/s/ Jose Martinez Brohez Director March 27, 1998
---------------------------------
Jose Martinez Brohez
/s/ Pedro Vaquero Garcia Director March 27, 1998
---------------------------------
Pedro Vaquero Garcia
/s/ Fernando Camacho Casas Director March 27, 1998
---------------------------------
Fernando Camacho Casas
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
NUMBER
EXHIBIT EXHIBIT INDEX
-------
<S> <C>
3.1 Articles of Incorporation of The UniMark Group, Inc., as
amended(1)
3.2 Amended and Restated Bylaws of The UniMark Group, Inc.(1)
3.3 Articles of Exchange of The UniMark Group, Inc.(1)
4.1 Specimen Stock Certificate(1)
10.1 The UniMark Group, Inc. 1994 Employee Stock Option Plan(1)
10.2 The UniMark Group, Inc. 1994 Stock Option Plan for Directors(1)
</TABLE>
<PAGE> 47
<TABLE>
<S> <C>
10.3 Stock Exchange Agreement between The UniMark Group, Inc. and the
stockholders of Industrias Citricolas de Montemorelos, S.A. de
C.V.(1)
10.4 Citrus Grove Lease Agreement(1)
10.5 Asset Operating Agreement between the Registrant and Industrias
Horticolas de Montemorelos, S.A. de C.V.(2)
10.6 Lease agreement among Hector Gerardo Castagne Maitret, Carlos
Courturier Arellano, Mauro Alberto Salazar Rangel, Miguel Angel
Salazar Rangel, Alejandrina Trevino Garcia, Gerardo Trevino
Garcia, Jorge Maitret and Industrias Citricolas de Montemorelos,
S.A. de C.V.(2)
10.7 Contract of Purchase and Sale between Empacadora Tropifrescos,
Sociedad Anonima de Capital Variable and Industrias Citricolas de
Montemorelos, S.A. de C.V.(2)
10.8 Lease Agreement between Industrias Citricolas de Montemorelos,
S.A. de C.V. and Valpak, S.A. de C.V. dated July 1, 1995(3)
10.9 Asset Operating Agreement between Industrial Citricolas de
Montemorelos, S.A. de C.V. and Empacadora de Naranjas Azteca, S.A.
de C.V. dated July 1, 1995(3)
10.10 Contract for Operation, Administration, and Purchase and Sale of
Fruit between Industrial Citricolas de Montemorelos, S.A. de C.V.
and Mr. Jorge Croda Manica ("Las Tunas") dated July 1, 1995(3)
10.11 Lease Contract between Industrial Citricolas de Montemorelos, S.A.
de C.V. and Mr. Mauro Alberto Salazar Rangel and Mr. Miguel Angel
Salazar Rangel ("Huerta Loma Bonita") dated 1995(3)
10.12 Unilateral Recognition of Indebtedness and Granting of Revolving
Collateral between Industrial Citricolas de Montemorelos, S.A. de
C.V. and Rabobank Curacao N.V. dated September 20, 1995(3)
10.13 Amended and Restated Stock Purchase Agreement among The UniMark
Group, Inc., 9029-4315 Quebec Inc., Michel Baribeau and Gestion
Michel Baribeau Inc. dated January 3, 1996(4)
10.14 Lease Agreement between Loma Bonita Partners and UniMark Foods,
Inc. dated November 28, 1995(3)
10.15 Lease Agreement between The UniMark Group, Inc. and Grosnez
Partners dated January 1, 1996(3)
10.16 Rural Property Sublease Agreement between Industrial Citricolas de
Montemorelos, S.A. de C.V. and Lorenzo Uruiza Lopez dated October
23, 1995(3)
10.17 Purchase Agreement between Industrial Citricolas de Montemorelos,
S.A. de C.V. and Jose Enrique Alfonso Perez Rodriquez dated
October 23, 1995(3)
10.18 Stock Purchase Agreement between The UniMark Group, Inc. and the
stockholders of Grupo Industrial Santa Engracia dated April 30,
1996(6)
10.19 Stock Purchase Agreement between The UniMark Group,
Inc., UniMark Foods, Inc., Sam Perricone Children's Trust 1972,
Sam Perricone and Mark Strongin dated May 9, 1996(6)
10.20 Employment Agreement by and between Grupo Industrial Santa
Engracia, S.A. de C.V. and Ing Jose Ma. Martinez Brohez dated as
of May 9, 1996(7)
10.21 Lease Agreement by and among Ralphs Grocery Company, Simply Fresh
Fruit, Inc. and Davalon Sales, Inc. dated as of March 1, 1994(7)
10.22 Revolving Credit Agreement by and among UniMark Foods, Inc., The
UniMark Group, Inc., UniMark International, Inc., Simply Fresh
Fruit, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A. dated February 12, 1997. (9)
10.23 Supply Contract between The Coca-Cola Export Corporation
and Grupo Industrial Santa Engracia, S.A. de C.V. dated October 7,
1996. (9)
10.24 Loan Agreement made between Industrias Citricolas de
Montemorelos, S.A. de C.V., Grupo Industrial Santa Engracia, S.A.
de C.V., Agromark, S.A. de C.V., as borrowers; The UniMark Group,
Inc., as guarantor, and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland", as lender,
dated May 29, 1997. (10)
10.25 Revolving Loan Agreement with Security Interest by and between
Industrias Citricolas de Montemorelos, S.A. de C.V., as borrower,
Grupo Industrial Santa Engracia, S.A. de C.V.
</TABLE>
<PAGE> 48
<TABLE>
<S> <C>
"Gise", Agromark, S.A. de C.V. "Agromark", and Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland" New
York Branch dated April 10, 1997. (10)
10.26 Revolving Loan Agreement with Security Interest by and between
Grupo Industrial Santa Engracia, S.A. de C.V. "Gise", as borrower,
Industrias Citricolas de Montemorelos, S.A. de C.V. "Icmosa",
Agromark, S.A. de C.V. "Agromark", and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland" New York
Branch dated April 10, 1997. (10)
10.27 First Amendment to Revolving Credit Agreement by and among UniMark
Foods, Inc., the borrower, and The UniMark Group, Inc., UniMark
International, Inc., Simply Fresh Fruit, Inc., the guarantors, and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland", New York Branch dated October 7, 1997. (10)
10.28 Second Amendment to Revolving Credit Agreement by and among
UniMark Foods, Inc., the borrower, and The UniMark Group, Inc.,
UniMark International, Inc., Simply Fresh Fruit, Inc., the
guarantors, and Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland", New York Branch dated November 12,
1997. (10)
10.29 Articles of Association of Gisalamo, S.A. de C.V. (11)
10.30 Deposit, Operation, Exploitation and Stock Purchase Option
Agreement by and among The UniMark Group, Inc. and Mr. Francisco
Domenech Tarrago and Mr. Francisco Domenech Perusquia dated
December 17, 1996 (11)
10.31 Gratuitous Loan Agreement by and among Gisalamo, S.A. de C.V. and
Frutalamo, S.A. de C.V. dated December 17, 1996 (11)
10.32 Non-Competition Agreement by and among The UniMark group, Inc. and
Jorn Budde dated February 18, 1998 (12)
21 Subsidiaries of the Registrant (11)
23 Consent of Ernst & Young LLP (11)
27 Financial Data Schedule (11)
27.1 Financial Data Schedule (11)
</TABLE>
- ---------------------
(1) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form SB-2, as amended, SEC Registration No. 33-78352-D.
(2) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994.
(3) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-QSB for the fiscal quarter ended September 30, 1995.
(4) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K dated January 16, 1995.
(5) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995.
(6) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K dated May 10, 1996.
(7) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1, as amended, SEC Registration No. 333-3539.
(8) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996.
(9) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
(10) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1997
(11) Filed herewith.
(12) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K dated February 18, 1998.
<PAGE> 1
EXHIBIT 10.29
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
VOLUME XCV
PAGE NUMBER TWO HUNDRED AND TWO
DOCUMENT NUMBER THREE THOUSAND FIVE HUNDRED AND NINETY-TWO
IN VICTORIA, CAPITAL CITY OF THE STATE OF TAMAULIPAS, at twelve noon on
the Seventh Day of October of Nineteen Hundred and Ninety-Six, I, LICENCIADA
BLANCA AMALIA CANO GARZA DE BELLO, Assigned to Notary Public Number 187 (One
Hundred and Eighty-Seven) the title of which is held by Licenciado Leopoldo Juan
Bello Lopez, with jurisdiction in the First Judicial District of the State and
residing in this capital city; hereby spread upon the record the Contract
forming a Corporation named:
"GISALAMO", SOCIEDAD ANONIMA
DE CAPITAL VARIABLE
executed by
"GRUPO INDUSTRIAL SANTA ENGRACIA", S.A. DE C.V.
represented herein by the President of the Board of Directors,
ENGINEER JOSE MARIA MARTINEZ BROHEZ
and by their own rights
ENGINEER FRANCISCO DOMENECH TARRAGO and
LICENCIADO FRANCISCO DOMENECH PERUSQUIA
pursuant to the following:
D E C L A R A T I O N S
ONE: The contracting parties hereby declare that on the 10th (tenth)
day of September of Nineteen Hundred and Ninety-Six (1996) permission was
granted by the Secretaria de Relaciones Exteriores [Department of Foreign
Affairs] to form a corporation named "GISALAMO", SOCIEDAD ANONIMA DE CAPITAL
VARIABLE; with the following particulars: PAGE SIX HUNDRED AND FORTY-ONE (641);
RECORD NO.: NINE SIX TWO EIGHT ZERO ZERO ZERO SIX TWO FIVE (9628000625),
PERMISSION NO.: TWO EIGHT ZERO ZERO ZERO SIX THREE FOUR (28000634).
A R T I C L E
SOLE: The contractual parties hereby form a corporation, of the type
known as "SOCIEDAD ANONIMA DE CAPITAL VARIABLE" governed by the following:
1
[English translation of original Spanish document]
<PAGE> 2
ARTICLES OF ASSOCIATION
NAME
ONE: The name of the corporation is "GISALAMO", which shall be followed
by the words SOCIEDAD ANONIMA DE CAPITAL VARIABLE" or the abbreviation S.A. DE
C.V.
PURPOSE
TWO: The purposes for which this corporation is organized are:
1. The production, purchase and sale, importation, exportation,
packaging and distribution under its own name or under the name of a third
party, of all types of fruit, as well as any article or product related to
agriculture, cattle, industry or commerce, including the manufacture of said
articles and products.
2. The purchase, sale, rent or fabrication and general handling of
appropriate and necessary equipment, machinery and raw materials to carry out
the activities of the corporation.
3. In general, the exercise of any activity related to the products and
articles described in the foregoing points, whether in the Republic of Mexico or
in foreign countries, including those activities pertaining to commission
agents, representatives, intermediaries or distributors.
4. The installation, construction, creation, operation and exploitation
of factories, offices, plants, warehouses, repair shops and any other activities
which may be required for the exercise of the corporation's activities.
5. The execution of all documents and legal business, whether such be
civil, administrative or commercial, related to the execution of any type of
contract, including those pertaining to production and leasing of goods,
personal property or real-estate for the development of the corporation's
activities.
6. Provide or receive all type of technical, administrative and
management services by companies or individuals, whether they be Mexican or
foreign.
7. The use, exploitation and registration either under its own name or
that of another party, by means of licenses, contracts, or any other means, of
industrial or commercial trademarks, patents, formulas and fabrication processes
which are the property of Mexicans or foreigners, related to the products or
articles described hereinabove.
8. The acquisition of all types of stocks or interest in partnerships,
associations or corporations, by means of the subscription of capital stock, or
by purchases from other Shareholders, whether they be nationals or foreigners.
9. The negotiation of loans or credits of any type for the exercise of
the corporate purposes, as well as the act of constituting surety for third
parties, in whatever manner deemed appropriate through the granting of
guarantees such as endorsements, bonds, mortgages or any other type.
2
<PAGE> 3
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
10. The acquisition by any legal title of personal property or real
estate which may be necessary or appropriate for the development of the
corporate purposes, as well as the performance of any business, subject only to
the permissions which may be required by the authorities.
11. In general, the exercise and execution of all documents,
agreements, contracts and operations which are appropriate for the development
of the corporation.
ADDRESS
THREE: The address of the corporation shall be in Ciudad Victoria,
Tamaulipas, and branch offices, agencies and offices may be set up in any place
within the Republic of Mexico or abroad.
TERM
FOUR: The term of the corporation shall be for ninety-nine (99) years
from the date of execution of these Articles of Association.
NATIONALITY
FIVE: The corporation shall be a Mexican corporation, and may admit
foreign partners. It is hereby agreed that: "Any foreigner who acquires an
interest or share in the corporation is hereby formally required by the
Secretaria de Relaciones Exteriores [Department of Foreign Affairs] to be
treated as a Mexican with respect to the shares of stock acquired or which may
be held as well as the goods, rights, concessions, shares or interest held by
the corporation, that is the rights and obligations derived from the contracts
in which the corporation is a party with Mexican Authorities, and they may not
invoke the protection of their governments; should they do so, they would be
penalized by losing the shares acquired for the benefit of the country."
CAPITAL STOCK AND SHARES
SIX: The capital of the corporation shall be variable.
The Minimum Fixed Capital Stock fully subscribed and paid, is in the
amount of $60,000.00 (SIXTY THOUSAND AND NO/100 PESOS NATIONAL CURRENCY),
represented by 60,000 (SIXTY THOUSAND) Series "A" Shares
The Variable Capital Stock fully subscribed and paid, is in the amount
of $40,000.00 (FORTY THOUSAND PESOS NO/100 NATIONAL CURRENCY), represented by
40,000 (FORTY THOUSAND) Series "B" Shares.
3
[English translation of original Spanish document]
<PAGE> 4
The total amount of Variable Capital Stock is unlimited, represented by
the number of Shares which may be determined by the General Regular Shareholders
Meeting. The movements of Variable Capital Stock shall be carried out according
to the requirements of the operations of the corporation, and shall be approved
at the General Regular Shareholders Meetings, in which each increase or decrease
may be approved individually, as well as movements which may be required over a
specified period of time.
SEVEN: The Minimum Capital stock is divided into Series "A" and Series
"B" Registered Common Stock, with a par VALUE of $1.00 (ONE PESO NO/100 NATIONAL
CURRENCY), having equal rights and obligations and equal participation in the
Capital Stock and in the distribution of dividends.
Series "A" Shares represent the Minimum Fixed Capital Stock of the
corporation.
Series "B" Shares represent the Variable part of the Capital Stock of
the corporation. The Series "B" shares, issued and not subscribed, shall be
retained in the Corporation's Treasury. Should there be various issues of Series
"B" Shares, they shall be numbered progressively according to the increases in
the Variable part of the Capital Stock approved by the General Regular
Shareholders Meeting.
The Series "A" Shares corresponding to the Minimum Fixed Capital Stock
and the Series "B" which correspond to the Variable part of the Capital Stock,
may be acquired by (i) Individuals, whether Mexican or foreign, (ii) Foreign
individuals which are immigrants, and (iii) Mexican or foreign entities.
EIGHT: The corporation shall keep a registry of Registered Shares which
shall set forth the information required by Article 128 (one hundred and
twenty-eight) of the General Corporate Law. The registry shall be kept either by
the corporation directly or by an Institution or Society legally authorized to
do so. The corporation shall consider, as owners of shares, those whose names
are written as such in said registry. To this affect, any holder may request
that the corporation record the transactions which may be carried out, provided
that the provisions of these Articles of Associations are fulfilled, as well as
any applicable legal requirements.
NINE: Both final and temporary stock certificates, as the case may be,
which represent the stock of the corporation shall contain: (i) the provisions
and requirements set forth in Article 125 (one hundred and twenty-five) of the
General Corporate Law, (ii) the records set forth in the Law of Foreign
Investment, (iii) the complete text of Articles Five, Six and Seven of these
Articles of Association, and (iv) the signed signatures of two Members of the
Board of Directors or the stamped signature of one of them, on the condition
that, in the latter case, the original signature be recorded in the Public
Registry of Property and Commerce corresponding to the Main Office of the
corporation.
4
[English translation of original Spanish document]
<PAGE> 5
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
The Board of Directors, shall be fully empowered to issue said titles
or certificates and to exchange them upon the request of the title holders.
TEN: In the event of any increase in the Capital Stock by means of new
contributions, whether in the fixed part or the variable part of the capital,
the shareholders shall have a preferential right, in proportion to the number of
shares held, to subscribe the shares represented in the increase. This right
shall be exercised according to the provisions of Article 132 (one hundred
thirty-two) of the General Corporate Law; except in the case that the increase
be approved by the General Shareholders Meeting, whether Full, Regular, or
Special, under the terms of Article 188 (one hundred eighty-eight) of the
aforementioned law, in which case, if the total amount of increase of stock: (i)
by unanimous agreement of the Shareholders shall be completely subscribed in the
respective Meeting, it shall not be necessary to publish a Notice and
furthermore, the corporation's shareholders shall not have the right to exercise
the preferential right within the period of fifteen (15) days conferred by the
aforementioned law, and: (ii) should the amount not be completely subscribed in
the respective Shareholders Meeting, it shall not be necessary to publish any
Notice, it being understood that the aforementioned period of 15 (fifteen) days
shall begin on the day following the respective Shareholders Meeting.
ADMINISTRATION:
ELEVEN: The Administration of the Corporation shall be the
responsibility of a Sole Administrator or a Board of Directors elected by the
General Regular Shareholders Meeting, made up of a minimum of seven (7) regular
members or a maximum number as shall be determined at the Shareholders Meeting.
The number of alternates, should such be named, may not be greater than the
number of Regular Members.
A Sole Administrator or a Board of Directors: (i) shall serve for one
year, or until such time as successors shall be elected by the General Regular
Shareholders Meetings, and shall take up their posts; and (ii) shall receive the
remuneration determined by the General Regular Shareholders Meeting.
TWELVE: The Sole Administrator or the Members of the Board of Directors
shall be elected by simple majority vote of the shares represented in the
General Regular Shareholders Meeting respectively, without computing, should
such be the case, the votes of the minority shareholders hereinafter referenced.
Any minority shareholder or group of shareholders, for each 25%
(twenty-five percent) of Capital Stock with voting rights, shall have the right
to name a Regular Member of the board and a respective alternate. In the event
the
5
[English translation of original Spanish document]
<PAGE> 6
shares representing the Capital Stock shall be recorded in the stock section of
the National Stock Registry and intermediaries as referenced in the Stock Market
Law, in said case, any minority shareholder or group of shareholders shall have
the right to name a Regular Member of the Board and a respective alternate for
every 10% (ten percent) of Capital Stock with voting rights represented.
THIRTEEN: The Board of Directors, in turn, shall appoint a President
from among its members if one is not named by the General Shareholders Meeting
In the supposed absence of a Regular Member, an Alternate Member
specifically elected by the General Regular Shareholders Meeting, shall replace
him/her. If an alternate has not been appointed, any of the Alternate Members
shall substitute for the absent Member, in the order in which said were
appointed by the Shareholders Meeting. The Board of Directors, may resolve that
the Alternate Members attend their meetings, even when said alternate members
are not replacing a Regular Member.
In the event that the General Regular Shareholders Meeting not do so,
the Board of Directors shall name a Secretary from its own members, which may
even be a person who is not a Regular or Alternate Member of the Board. In the
event of temporary or permanent absences of the Secretary, an alternate
appointed by the Members of the Board of Directors shall replace him/her.
FOURTEEN: The Sole Administrator or the Board of Directors shall have
the general powers of attorney required to fulfill the purposes of the
corporation, and shall be limited only by the requirements of the Law and these
Articles of Association, and to said effect, shall be invested with the powers
set forth by the first three paragraphs of Article 2554 (two thousand five
hundred and fifty-four) of the Civil Code for the Federal District and its
corollaries in the Civil Codes for the States of the Republic, for Lawsuits and
Collection, for Administrative and Ownership Acts, and even those required by
Special Clause and Exchange Power to subscribe, draw, accept, endorse and
guarantee all types of Credit Instruments. The Administrator or Board of
Directors shall have the use of the corporate signature and may delegate said
powers to one or more persons, thereby conferring upon them General or Special
Powers of Attorney with or without the power of substitution or revocation, for
Lawsuits and Collection, for Acts of Administration, for Acts of Ownership and
Exchange which may be revoked at any time, without cause.
FIFTEEN: The Meetings of the Board of Directors shall be held at least
twice a year at the Corporate address, with prior Notice to the Board of
Directors, or whenever the President shall call a meeting. They may also be held
in any other part of the country, or abroad, by prior agreement of the Board as
adopted in a previous meeting or meetings.
The Secretary of the Board shall send written notice to all Members and
Corporate Officials, whether Regular or Alternate, at least three (3) calendar
6
<PAGE> 7
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
days prior to the date of the Meetings. Said notices shall be sent to the
addresses recorded by the Secretary of the Board. The Notice shall include the
time, date and place of the Meeting.
SIXTEEN: In order for the Board of Directors to function legally, a
majority of the members must attend, and its resolutions will be valid when made
by a majority of the members present.
QUORUM FOR INSTALLATION AND VOTING FOR THE BOARD OF DIRECTORS. - The
presence and affirmative vote of all Regular Members of the Board of Directors
or their respective alternates shall be required in Special Sessions held to:
1) Carry out of the acquisition, sale, lien or disposition by any legal
means of corporations, associations, trusts or legal entities, with or without
legal capacity or of their stocks, shares, goods and services, when the amount
of the operation shall exceed 20% (twenty percent) of the net worth, according
the last Corporate Financial Statement.
2) Carry out the acquisition, sale, lien or disposition by any legal
means of the fixed assets or inventories, outside of normal operations, which
amount shall exceed 10% (ten percent) of the Net Worth, according to the latest
Corporate Financial Statement.
3) The negotiation of any credit, financing or debt which results in a
rate of liabilities to net worth which exceeds a one for one value according to
the latest Corporate Financial Statement.
4) The granting of any type of guarantee of third party operations,
except those of the subsidiaries of the corporation.
5) The granting of credit or financing to third parties, except to the
subsidiaries of the corporation.
6) The sale, assignment, lien or disposition by any legal means, of
patents, trademarks, certificates of investment, technical knowledge, or
technologies which are the property of the Corporation.
7) The granting or revoking of General or Special Powers of Attorney
for performing Acts of Ownership and the granting of endorsements, except those
which are granted to be exercised solely to guarantee the operations of the
subsidiaries of the corporation.
The term the "subsidiaries of the corporation" as used in this Article,
shall mean a corporation, association, trust, or legal entity, with or without
legal capacities, in which: (i) the Corporation shall own at least 51%
(fifty-one percent) of its Stock, shares, assets and services; or (ii) 51%
(fifty-one percent) of its stock, shares, assets, and services shall be owned by
a company which is a subsidiary of the Corporation.
The Minutes of the Meetings shall be signed by those who have presided
as President and Secretary of the Board of Directors, and the Secretary of the
7
[English translation of original Spanish document]
<PAGE> 8
Board shall have the authority to issue certified copies of the records of the
minute book of the Corporation, as well as related documents.
SEVENTEEN. The Board of Directors may legally hold meetings and pass
resolutions, even if not all the requirements for Notice of the Meeting
established in Article Fifteen of these Articles have been met, provided that
there is 100% (one hundred percent) attendance of both the regular or alternate
members of the board and the regular or alternate Auditor at the meeting.
Resolutions passed unanimously outside of the Board of Directors
Meeting, with all Regular Board Members voting shall, for all legal effects,
have the same legal force as if they had been adopted during the Meeting of the
Board of Directors, provided that the resolutions be confirmed in writing by all
the Regular Board Members.
EIGHTEEN. In the General Regular Shareholders Meetings in which either
a Sole Administrator or Board of Directors Members are elected, the following
may be resolved: (i) the amount of guarantee that each Board Member shall
furnish (which shall be the same in each case for all Members, without making
any distinction between them) to insure the responsibilities they may incur
during the performance of their duties, in which case, the guarantees which were
furnished shall not be paid off until the Financial Statement corresponding to
the period of their management shall be approved in the General Regular
Shareholders Meeting; or (ii) that all Board Members be relieved of the
obligation to furnish a guarantee to insure the performance of their duties.
THE AUDITING OF THE CORPORATION
NINETEEN. The auditing of the Corporation shall be delegated to a
Regular Auditor, which will be named by the General Shareholders Meeting. The
Shareholders Meeting may name an Alternate Auditor.
Auditors: (i) shall have the authorities and responsibilities set forth
in the General Corporate Law; (ii) shall serve in their office for one year, or
until successors be elected by another General Regular Shareholders Meeting and
have taken up their posts; and (iii) shall receive the remuneration determined
by the General Regular Shareholders Meeting.
In the General Regular Shareholders Meetings in which Auditors shall be
elected, the following may be resolved: (i) the amount of the guarantee that
each of the Auditors shall furnish (which shall be the same in each case for all
the Auditors, without making any distinction between them) to insure the
responsibilities they may incur during the performance of their duties, in which
case, the guarantees which were furnished shall not be paid off until the
Financial Statement corresponding to the period of their management shall be
approved at the General Regular Shareholders Meeting; or (ii) that all Auditors
be relieved of the obligation to furnish a guarantee to insure the performance
of their duties.
8
<PAGE> 9
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
GENERAL SHAREHOLDERS MEETINGS
TWENTY. The General Shareholders Meetings shall be either Regular,
and/or Special, and shall have the respective authorities granted them in
Articles 180 (one hundred eighty), 181 (one hundred eighty-one) and 182 (one
hundred and eighty-two) of the General Corporate Law, with the exception noted
in Article Six.
TWENTY-ONE. The First Notice for any type of General Shareholders
Meeting shall be published in one of the Newspapers with the highest circulation
in the vicinity of the Corporation, at least 10 (ten) calendar days prior to the
date indicated for the meeting to be held, and the second or subsequent Notices
shall be published at least 5 (five) calendar days prior to the Meeting
according to the aforementioned provisions of this Article.
The Notice for any type of General Shareholder meeting shall contain
the date, time, address and the agenda with the points which will be brought
before the Shareholders Meeting.
If all the shares corresponding to the Capital Stock of the Corporation
are represented at the time of the installation and voting of the Shareholders
Meeting, the meeting may be held without the need for prior Notice.
The resolutions taken outside of the General Shareholders Meetings, by
unanimous vote of the shareholders representing all the shares corresponding to
the Capital Stock of the Corporation shall, for all legal effects, be as valid
as if they had been adopted in the General Shareholders Meeting, provided that
the respective resolutions be confirmed in writing by all shareholders.
TWENTY-TWO. The shareholders may personally attend the Shareholders
Meetings or may be represented by proxy agents designated for said purpose. For
proxy purposes, the simple issuance of a proxy document signed before two
witnesses shall suffice. Neither the Members of the Board of Directors nor the
Auditors may be proxy agents.
Those shareholders wishing to attend the Shareholders Meeting either in
person or by proxy, shall obtain an entrance card from the Board of Directors at
least 1 (one) working day before the date indicated for the meeting.
TWENTY-THREE. With respect to the First Shareholders Meeting, (i) for
the General Regular Shareholders Meeting to be considered as having been legally
convened, at least 70% (seventy percent) of the total shares representing the
Capital Stock must be represented, and resolutions shall be passed by an
affirmative vote of at least 50% (fifty percent) of the total shares
representing the Capital Stock.
9
[English translation of original Spanish document]
<PAGE> 10
TWENTY-FOUR. The Shareholders Meetings shall be presided over by the
President of the Board of Directors. In his absence, the Meetings shall be
presided over by the person so designated by the attendees. The Secretary shall
be the Secretary of the Board of Directors, or in his absence, the person so
designated by the attendees. The President shall appoint two tellers [vote
inspectors] from those persons present.
The Minutes of the Shareholders Meetings shall be kept in the book
reserved for that purpose and shall be signed by the President and the Secretary
of the Meeting, as well as by the attending Auditor.
FISCAL YEAR, FINANCIAL INFORMATION AND EARNINGS
TWENTY-FIVE. Pursuant to the terms set forth in Article 8A (eight A) of
the General Corporate Law, the Fiscal Year of the Corporation shall be from the
1st (first) of January to the 31st (thirty-first) of December of each year.
TWENTY-SIX. At the General Regular Shareholders Meeting, the Board of
Directors shall present the financial report stipulated by Article 172 (one
hundred and seventy-two) of the General Corporate Law.
TWENTY-SEVEN. Dividends which are not collected for 5 (five) years from
the date on which they were eligible according to the published payment notice,
shall be prescribed to the Corporation and credited toward the accumulated
earnings of the previous fiscal years.
DISSOLUTION AND LIQUIDATION
TWENTY-EIGHT. The Corporation may be dissolved in those cases
referenced in paragraphs I, II, IV and V of Article 229 (two hundred and
twenty-nine) of the General Corporate Law, or as determined by the Special
Shareholders Meeting.
Once the Corporation is dissolved, the Shareholders at their Meeting
shall name a Liquidator by majority vote, and shall specify the term for the
fulfillment of his duties as well as his remuneration.
The Liquidator shall perform the liquidation according to the rules so
established by the Special Shareholders Meeting, and where not specified by said
rules, according to the following norms:
I. Pending business shall be concluded according to the manner judged
most beneficial to the corporation, credits shall be collected and debts shall
be paid, in order to dispose of the assets of the corporation, which must be
sold for this purpose.
II. The final balance of liquidation shall be drawn up and delivered to
the Public Business Registry.
10
<PAGE> 11
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
III. After the final balance of the liquidation is approved, the
resulting liquid assets shall be distributed among the shareholders, in
proportion to the number of shares held.
IV. The Liquidator shall, during the liquidation process, perform all
activities and duties set forth in Article 242 (two hundred and forty-two) of
the General Corporate Law.
TRANSITIONAL AGREEMENTS:
FIRST: The meeting held by the contracting parties upon execution of
these Articles of Association, shall constitute the First General Shareholders
Meeting, in which the following agreements were unanimously adopted by the
attendees:
I. The Capital of the Corporation is Variable: a) The Minimum Fixed
Capital Stock shall be the amount of $60,000.00 (SIXTY THOUSAND PESOS AND NO/100
NATIONAL CURRENCY), represented by 60,000 (SIXTY THOUSAND) Series "A" Registered
Common Stock, with a par value of $1.00 (ONE PESO AND NO/100 NATIONAL CURRENCY)
per share, b) the Variable Capital Stock shall be unlimited and as of this date,
$40,000.00 (FORTY THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) is subscribed,
represented by 40,000 (FORTY THOUSAND) Series "B" Registered Common Stock, with
a par value per share of $1.00 (ONE PESO and NO/100 NATIONAL CURRENCY); the
Minimum Fixed Capital Stock and its variable part is fully subscribed and paid
in the following manner:
<TABLE>
<CAPTION>
SHAREHOLDERS SERIES "A" STOCK TOTAL PAID
------------ ---------------- -------------
<S> <C> <C>
GRUPO INDUSTRIAL SANTA 60,000 $ 60,000.00
ENGRACIA, S.A. DE C.V.
SERIES "B" STOCK
----------------
ING. FRANCISCO DOMENECH TARRAGO 27,000 $ 27,000.00
LIC. FRANCISCO DOMENECH PERUSQUIA 13,000 $ 13,000.00
TOTAL SERIES "A" SHARES 60,000 $ 60,000.00
TOTAL SERIES "B" SHARES 40,000 $ 40,000.00
------- ------------
TOTALS 100,000 $ 100,000.00
</TABLE>
II. The administration of the Corporation shall be by means of a Board
of Directors for which purpose, the following persons are herein named:
PRESIDENT: ING. JOSE MARIA MARTINEZ BROHEZ
SECRETARY: ING. FRANCISCO DOMENECH TARRAGO
TREASURER: M.V.Z. MANUAL MARTINEZ ARTEAGA
FIRST DIRECTOR: LIC. RAFAEL VAQUERO BAZAN
SECOND DIRECTOR: LIC FRANCISCO DOMENECH PERUSQUIA
11
[English translation of original Spanish document]
<PAGE> 12
THIRD DIRECTOR: ING. FEDERICO MARTINEZ ZAMBRANO
FOURTH DIRECTOR: MA. TERESA PERUSQUIA QUINTERO
III. Each of the members of the Board of Directors shall furnish a
guarantee in the amount of $100.00 (ONE HUNDRED PESOS AND NO/100 NATIONAL
CURRENCY) to insure the proper fulfillment of their duties, said amount being
deposited in the Corporation's treasury.
IV. C.P. PEDRO GARZA SALAZAR is hereby named as AUDITOR of the
Corporation.
V. The Auditor shall deposit in the Treasury of the Corporation the
amount of $100.00 (ONE HUNDRED PESOS AND NO/100 NATIONAL CURRENCY) to insure the
proper fulfillment of his duties.
VI. The Variable Capital Stock subscribed shall be reduced to par value
in the following manner: A) In October of 1999 (Nineteen Hundred and
Ninety-Nine), the sum of $12,000.00 (TWELVE THOUSAND PESOS AND NO/100 NATIONAL
CURRENCY) equivalent to 12,000 (TWELVE THOUSAND) Series "B" Shares.
B) In October of 2000 (Two Thousand), the sum of $12,000.00 (TWELVE
THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 12,000 (TWELVE
THOUSAND) Series "B" Shares.
C) In October of 2001 (Two Thousand and One), the sum of $4,000.00
(FOUR THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 4,000 (FOUR
THOUSAND) Series "B" Shares.
D) In October of 2002 (Two Thousand and Two), the sum of $4,000.00
(FOUR THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 4,000 (FOUR
THOUSAND) Series "B" Shares.
E) In October of 2003 (Two Thousand and Three), the sum of $4,000.00
(FOUR THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 4,000 (FOUR
THOUSAND) Series "B" Shares.
F) In October of 2004 (Two Thousand and Four), the sum of $4,000.00
(FOUR THOUSAND PESOS AND NO/100 NATIONAL CURRENCY) equivalent to 4,000 (FOUR
THOUSAND) Series "B" Shares.
VII. Any partner wishing to withdraw from the Corporation shall give at
least two months prior written notice to Corporate Management. With respect to
the sale of shares of said partner, the current shareholders shall have
preference in proportion to the percentage of shares held and the payment for
said shares may be made within 1 (one) year and with respect to the buyer's
purchasing capacity.
VIII. The attendees shall be subject to the Courts of Ciudad Victoria,
Tamaulipas, for the interpretation and fulfillment of these Articles of
Association.
IX. The President of the Board of Directors, INGENIERO JOSE MARIA
MARTINEZ BROHEZ, is herein granted the following powers of attorney along with
all general and special powers which, according to law, require a special
clause, under the term of Article 2554 of the Civil Code of the Federal
District, in common matters, applicable to the whole Republic with respect to
federal
12
<PAGE> 13
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
matters, as well as its corollaries in the Civil Codes of the States, including
Article 1890 of the Civil Code for the State of Tamaulipas, as listed below,
including but not limited to the following:
1. GENERAL POWER OF ATTORNEY FOR LAWSUITS AND COLLECTIONS. To exercise
this Power before all types of persons and Judicial and Administrative
authorities, whether civil, penal, labor, local and federal, and specifically,
to present all types of claims, charges and actions, and to abandon such, to
commit to arbitration, to prepare and answer interrogatories, to challenge
judges, to accept assignment of property, to receive payments and grant receipts
and cancellations; to give account and deliver monies at all times and places
when so petitioned by the principal, to prosecute lawsuits, whether civil,
commercial, penal or any other type, to answer demands, and charges, and to
continue proceedings until their final termination; to present proceedings for
relief and abandon such, to make all types of petitions, accusations or claims
of any type, in any penal process, to join the Public Ministry as a coadjutor,
to grant pardons to the accused parties when action is taken, to present proofs
in penal processes, subject to the provisions of Article 9 of the Code of Penal
Proceedings of the Federal District and the Corollary Articles in the Penal
Codes of the States of the Mexican Republic and the Code of Penal Proceedings.
2. GENERAL POWER OF ATTORNEY FOR LABOR MATTERS, with authority of
Employer Representation, in accordance with and to the effects of Articles 11,
45, 47, 134, Sections III (sic.), 523, 692 Sections I, II, and III, 786, 878,
880, 883, and 884 of the Federal Workers Law. The power granted and the Employer
Representation that is conferred shall be exercised in accordance with the
following authorities which are set forth, including but not limited to: the
power to act before labor unions with which Collective Labor Contracts have been
signed, and before individual workers, and in general to take action in all
employee-employer matters, and to exercise these powers before any of the Labor
or Social Service Authorities referred to in Article 523 of the Federal Workers
Law; and also to appear before Settlement and Arbitration Boards, whether local
or federal, and to exercise Employer Representation pursuant to Articles 11, 46
and 47 of the Federal Worker Law, and also to exercise Legal Representation
representing legal status and capacity in trials or outside of trials under the
terms of Article 692, Sections II and III; to appear to answer interrogatories
under the terms of Articles 787 and 788 of the Federal Workers Law, with
authority to answer any and every interrogatory; to indicate the elected
domicile for hearing and receiving notification, under the terms of Article 876
of the Federal Workers Law, to appear in the place and stead of Employer in all
legal matters, accepted and sufficient for the hearings referred to in Article
8733 of the Federal Workers Law, with respect to the three phases of:
conciliation,
13
[English translation of original Spanish document]
<PAGE> 14
petition and defense, and offering and admitting evidence, under the terms of
Article 875, 876, Sections I and IV, 877, 878, 879, and 990 of the Federal
Workers Law, to attend hearings to answer interrogatories, under the terms of
Articles 883 and 884 of the Federal Workers Law, to make settlement arrangements
and executive transactions, to make all types of decisions, to negotiate and
sign labor agreements, to mediate proceedings for relief and abandon the same,
to answer interrogatories, to execute Individual and Collective Contracts and
terminate or rescind the same.
3. GENERAL POWER OF ATTORNEY FOR ADMINISTRATIVE ACTS, to manage the
goods and business of the Corporation and:
A) To carry out all operations inherent to the Purpose of the
Corporation: such as executing Contracts, whether Lease, Comodatum, Building,
Construction, Work Contracts, whether individual or collective, or any other
type required in the exercise of the broadest administrative authority.
B) To receive and make payments, grant receipts and releases and sign
all documents and instruments which will evidence each and every document that
is executed, along with the articles, terms, prices and other conditions deemed
appropriate.
C) To carry out and interpret the decisions of the Shareholders
Meetings, and promote their fullest enforcement and fulfillment.
D) To appoint and remove personnel and managers who may come to work
for the corporation as well as advise them of their authorities, obligations and
remunerations.
4. GENERAL POWER OF ATTORNEY FOR ACTS OF OWNERSHIP; being hereby
authorized to exercise acts of ownership with respect to the assets and rights
of the Corporation, having all the authorities of owner, including that of
performing any act, even when same would involve the sale or encumbrance of the
personal property or real estate, as well as granting all types of guarantees.
5. GENERAL POWER OF ATTORNEY FOR BILLS OF EXCHANGE, Authority is hereby
granted under the terms of Article 9 of the General Law of Titles and Credit
Operations, to open bank accounts, to deposit and withdraw funds, to issue,
grant, subscribe, draw, endorse, guarantee, accept, refuse, negotiate and in
general, to carry out any other act related to the obligations, business or
civil documents, and Credit Instruments; to negotiate and obtain from any
Banking or Credit Institution loans or lines of credit which may be deemed
necessary for the operations of the Corporation, as well as to invest said Loans
or Credits in the business of the Corporation; to sign the corporate signature
on all types of documents, contracts, and credit instruments required by the
aforementioned institutions, as well as those arising from the credit
requirements of the corporation.
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<PAGE> 15
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
6. To carry out and interpret the decisions of the Shareholders
Meetings, and promote their fullest enforcement and fulfillment.
7. SUBSTITUTIONS AND LIMITATIONS OF AUTHORITIES. The President may
delegate his authorities by substitution with the express reservation of the
same and grant powers, with the authorities that he deems pertinent in each
case, as appropriate, as well as revoke the powers granted.
The President shall bear the legal representation of the corporation
and may exercise his authority without the need of prior consultation with the
Shareholders, without prejudice that the Shareholders may delegate such
authorities as deemed appropriate to any other of its members.
X. The Secretary of the Board of Directors, Ingeniero Francisco
Domenech Tarrago is herein granted the following powers:
1. GENERAL POWER OF ATTORNEY FOR LAWSUITS AND COLLECTIONS. To exercise
this Power before all types of persons and Judicial and Administrative
authorities, whether civil, penal, labor, local and federal, and specifically,
to present all types of claims, charges and actions, and to abandon such, to
commit to arbitration, to prepare and answer interrogatories, to challenge
judges, to accept assignment of property, to receive payments and grant receipts
and cancellations; To give account and deliver monies at all times and places
when so petitioned by the principal, to prosecute lawsuits, whether civil,
commercial, penal or any other type, to answer demands, and charges, and to
continue proceedings until their final termination; to present proceedings for
relief and abandon such, to make all types of petitions, accusations or claims
of any type, in any penal process, to join the Public Ministry as a coadjutor,
to grant pardons to the accused parties when action is taken, to present proofs
in penal processes, subject to the provisions of Article 9 of the Code of Penal
Proceedings of the Federal District and the Corollary Articles in the Penal
Codes of the States of the Mexican Republic and the Code of Penal Proceedings.
2. GENERAL POWER OF ATTORNEY FOR LABOR MATTERS, with authority of
Employer Representation, in accordance with and to the effects of Articles 11,
45, 47, 134, Sections III (sic.), 523, 692 Sections I, II, and III, 786, 878,
880, 883, and 884 of the Federal Workers Law. The power granted and the Employer
Representation that is conferred shall be exercised in accordance with the
following authorities which are set forth, including but not limited to: the
power to act before labor unions with which Collective Labor Contracts have been
signed, and before individual workers, and in general to take action in all
employee-employer matters, and to exercise these powers before any of the Labor
or Social Service Authorities referred to in Article 523 of the Federal
15
[English translation of original Spanish document]
<PAGE> 16
Workers Law; and also to appear before Settlement and Arbitration Boards,
whether local or federal, and to exercise Employer Representation pursuant to
Articles 11, 46 and 47 of the Federal Worker Law, and also to exercise Legal
Representation representing legal status and capacity in trials or outside of
trials under the terms of Article 692, Sections II and III; to appear to answer
interrogatories under the terms of Articles 787 and 788 of the Federal Workers
Law, with authority to answer any and every interrogatory; to indicate the
elected domicile for hearing and receiving notification, under the terms of
Article 876 of the Federal Workers Law, to appear in the place and stead of
Employer in all legal matters, accepted and sufficient for the hearings referred
to in Article 8733 of the Federal Workers Law, with respect to the three phases
of: conciliation, petition and defense, and offering and admitting evidence,
under the terms of Article 875, 876, Sections I and IV, 877, 878, 879, and 990
of the Federal Workers Law, to attend hearings to answer interrogatories, under
the terms of Articles 883 and 884 of the Federal Workers Law, to make settlement
arrangements and executive transactions, to make all types of decisions, to
negotiate and sign labor agreements, to mediate proceedings for relief and
abandon the same, to answer interrogatories, to execute Individual and
Collective Contracts and terminate or rescind the same.
3. GENERAL POWER OF ATTORNEY FOR ADMINISTRATIVE ACTS, to manage the
goods and business of the Corporation and:
A) To carry out all operations inherent to the Purpose of the
Corporation: such as executing Contracts, whether Lease, Comodatum, Building,
Construction, Work Contracts, whether individual or collective, or any other
type required in the exercise of the broadest administrative authority.
B) To receive and make payments, grant receipts and releases and sign
all documents and instruments which will evidence each and every document that
is executed, along with the articles, terms, prices and other conditions deemed
appropriate.
C) To carry out and interpret the decisions of the Shareholders
Meetings, and promote their fullest enforcement and fulfillment.
D) To appoint and remove personnel and managers who may come to work
for the corporation as well as advise them of their authorities, obligations and
remunerations.
E) To open bank accounts.
PERSONAL CIRCUMSTANCES
INGENIERO (ENGINEER) JOSE MARIA MARTINEZ BROHEZ, a Mexican national, of
age, married, businessman, with Federal Taxpayer Number MABM-(??illegible)0608,
originally from and residing in this capital city, residing at Sonora and Nueve,
Number Two Thousand Seven North, Subdivision of San Jose, Postal Code ;87040.
16
<PAGE> 17
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
INGENIERO (ENGINEER) FRANCISCO DOMENECH TARRAGO, a Mexican national, of
age, married under the Rule of Separation of Property to Mrs. Maria Teresa
Perusquia Quintero, Oenology Engineer, with Federal Taxpayer Number
00TF-410904-A82, originally from and residing in the City of Mexico, Federal
District, residing at Bosque de Capulinas, number One hundred Eighty-Five,
Bosques de las Lomas and temporarily in this City. Postal Code: 11700.
LICENCIADO FRANCISCO DOMENECH PERUSQUIA, a Mexican national, of age,
single, with a degree in Business Administration, with Federal Taxpayer Number
DOPF-681023-ML6, originally from and residing in the City of Mexico, Federal
District, residing at Bosques de Capulinas, Number One Hundred Eighty-Five,
Bosques de las Lomas, and temporarily in this City. Postal Code: 11700.
LEGAL STATUS
Jose Maria Martinez Brohez, attests to the legal existence of GRUPO INDUSTRIAL
SANTA ENGRACIA, S.A. DE C.V., with Public document number Nine Hundred
Fifty-three, dated the 2nd of August of Nineteen Hundred Eighty-Eight, contained
in Volume Thirteen of the Registry of documents in the trust of the undersigned;
whose First Testimony has been duly recorded in the Public Registry of Property
and Commerce of the State; Commerce Section, Number 65, Book 57, Municipality of
Victoria, Tamaulipas, dated August 27, 1988, by means of which the corporation
"GRUPO INDUSTRIAL SANTA ENGRACIA" S.A. DE C.V. was formed, I hereby attest that
I have personally viewed same and the relevant information is as follows:
DECLARATIONS: ONE: Having met to form the Corporation with Variable
Capital, and having obtained from the Secretaria de Relaciones Exteriores
[Department of Foreign Affairs] the required permission, said permission number
828539 was granted on the Ninth day of May of Nineteen Hundred Eighty-Eight:
ARTICLES OF ASSOCIATION: ARTICLE I: The name of the Corporations is "GRUPO
INDUSTRIAL SANTA ENGRACIA" SOCIEDAD ANONIMA DE CAPITAL VARIABLE....ARTICLE II.
The corporation is a Mexican corporation whose address is located in the
Municipality of Hidalgo, Tamaulipas...and will submit to the elected domicile.
ARTICLE III. 1. The purpose of the corporation is the production, purchase,
sale, importation, exportation, packaging and distribution of all types of
fruits under its own name or that of a third party. 2. The purchase, sale, rent
or fabrication and general business relating to the equipment, machinery and raw
materials appropriate and necessary for the performance of the activities
indicated in the foregoing point. 3. In general, the exercise of any activity
related to the products and articles described in the foregoing points. 4. The
installation, construction, creation, operation and exploitation of factories -
and any other activity that may be
17
[English translation or original Spanish document]
<PAGE> 18
required for the performance of the foregoing purposes. 5. The execution of all
documents and legal business....for the development of the corporation's
activities. 6. Provide or receive all type of technical, administrative and
management services by companies or individuals, whether they be Mexican or
foreign. 7. The use, exploitation and registration either under its own name or
that of another party, by means of licenses, contracts or any other means, of
industrial or commercial trademarks...related to the products or articles
described hereinabove. 8. The acquisition of all types of stocks or interest in
partnerships, associations or corporations, by means of the subscription of
capital stock, or by purchase from other Shareholders, whether they be nationals
or foreigners. 9. The negotiation of loans or credits of any type for the
exercise of the corporate purposes...10. The acquisition by any legal title of
personal property or real estate which may be necessary...ARTICLE IV. The term
shall be for (99) ninety-nine years. ARTICLE V. The Capital Stock shall be
variable. ARTICLE VI. Minimal Capital Stock is $4,000.000.00 (FOUR MILLION PESOS
AND NO/100 NATIONAL CURRENCY). ARTICLE VII. ...3. The variable part may be
increased with no formal requirements other than approval by the General
Shareholders Meeting. ARTICLE VIII. The Board of Directors shall have the
following powers: 1. Exercise Acts of Ownership...2. Administer the business and
assets of the Corporation...3. Exercise Powers of Lawsuits and Collections...4.
Issue, accept, remit, subscribe, release, endorse and guarantee all types of
credit instruments as well as grant bonds or guarantees of any type with respect
to the contractual obligations of the instruments issued by the corporation or
by third parties. TRANSITORY AGREEMENTS: The First Board of Directors, by
resolution of the Shareholders shall be composed as follows: PRESIDENT: ING.
JOSE MARIA MARTINEZ BROHEZ...
18
<PAGE> 19
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
NOTARIAL CERTIFICATE
I, the undersigned, in my capacity as Notary, do hereby attest and
certify:
a) that the inserted and reported text agrees with the originals which
I personally viewed and to which I have referred.
b) that the individuals who have appeared before me are personally
known to me, and do hereby under oath declare that they have the legal capacity
to enter into this contract and obligation, there being no legal impediment to
their doing so.
c) that I have advised the signatories of this instrument of their
obligation to evidence within thirty days of execution of the same, that an
application for registration at the Federal Taxpayers Registry has been
submitted in the name of the legal entity formed by this instrument, and in the
event to the contrary, these Articles of Association shall not be authorized;
likewise, they have been advised of their obligation to record the First
Testimony in the Public Registry of Property and Business.
d) that ARTICLE 1890 OF THE CIVIL CODE OF THE STATE OF TAMAULIPAS
literally states: "In all the general powers for lawsuits and collections, it
shall suffice to say that all general powers and special powers which according
to law require a special clause are granted, in order for it to be understood
that same are conferred without any limitation. In the general powers for
administering property, it shall suffice to state that they are given with this
nature in order that the attorney-in-fact shall have all types of administrative
authorities. With respect to the general power for Acts of Ownership, it shall
suffice to state that said general powers are given in this capacity so that the
attorney-in-fact may have all ownership authorities, both with respect to the
assets, as well as to take any measures in order to defend or administer them.
When it is desired to limit the powers of the attorneys-in-fact, in the three
aforementioned cases, the limitations shall be consigned, or shall be granted,
with respect to special powers. The notaries shall insert this article in the
testimonies of the powers granted before them. They shall insert the same at the
foot of the document and before the ratifying signatures if such were not
inserted into the text of the document by the interested parties, that is the
officials before whom the executing grantors and witnesses ratified their
signatures according to Section II of Article 1887 in relation to Article 1891.
e) In witness whereof, having read these Articles of Association to the
individual [sic.] who appeared before me, and having explained the scope and
legal force of the document being executed, the undersigned, having stated his
[sic.] agreement with same, hereby ratified and signed this instrument before me
19
[English translation of original Spanish document]
<PAGE> 20
at ten o'clock on the twenty-sixth day of August of Nineteen Hundred and
Ninety-Six.
ING. JOSE MARIA MARTINEZ BROHEZ, ING. FRANCISCO DOMENECH TARRAGO, LIC.
FRANCISCO DOMENECH PERUSQUIA. Signatures. ATTESTED TO BY: LIC. BLANCA AMALIA
CANO GARZA DE BELLO. Signature.
IN WITNESS WHEREOF, BEFORE ME, the aforementioned individuals appeared
and signed this instrument at twelve o'clock noon on the seventh day of October
of Nineteen Hundred and Ninety-Six. LIC. BLANCA AMALIA CANO GARZA DE BELLO.
Signature. Notarial Seal.
DEFINITIVE AUTHORIZATION. This instrument is hereby definitively
authorized at twelve fifty-two on the twenty-second day of November of Nineteen
Hundred and Ninety-Six, said being the date on which the interested parties
presented a copy of the registration in the Federal Taxpayers Registry, issued
by the Oficina Federal de Hacienda [Treasury Department], with registration
number GIS961007Q96. IN WITNESS WHEREOF: LIC BLANCA AMALIA CANO GARZA DE BELLO.
Signature. Notarial Seal.
ATTACHMENTS:
The following documents are attached as ATTACHMENTS.
A) Permission from the Secretaria de Relaciones Exteriores [Department
of Foreign Affairs] - copy
B) Notice to the Secretaria de Relaciones Exteriores [Department of
Foreign Affairs] of the use of the name with the pertinent information -original
C) Federal Taxpayer Roll - copy
D) Copy of the public document No. Nine Hundred Fifty-Three, whereby
the Company UNIMARK, GROUP INC. was formed. E) Copy of the Public Document No.
One Thousand Five Hundred Eighty, in which the Power for Lawsuits and
Collections, Acts of Administration and Strict Ownership were granted to
INGENIERO JOSE MARIA MARTINEZ BROHEZ.
I HEREBY ATTEST that this is the FIRST OFFICIAL COPY, a faithful and
exact copy of the original which is located in Volume XCV, and the respective
appendix of the Official Registry of Public Instruments in my trust, with a
notation written by the original regarding its issuance, twelve letter size
pages were issued, corrected, collated, and signed and sealed, for the legal
uses and ends required by the corporation "GISALAMO, SOCIEDAD ANONIMA DE CAPITAL
VARIABLE, as petitioner, in the capital of the State of Tamaulipas, on the
twenty-second day of the month of November of Nineteen Hundred and Ninety-Six.
20
<PAGE> 21
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
[Signature]
LIC BLANCA AMALIA CANO GARZA DE BELLO
A.N.P. No. 187
21
[English translation of orginal Spanish document]
<PAGE> 22
Registration Information:
Registered under number 89
Book No. ..624.. Commerce Section
Fees $692.00, Receipt No. D00032-01
dated ________________________
Cd. Victoria, Tam. ..28 Nov. 1996..
Director of Pub. Reg. of Prop.
SEAL:
LIC. LEOPOLDO JUAN BELLO LOPEZ
NOTARY PUBLIC NO. 187
CD. VICTORIA, TAM.
SEAL:
GOVERNMENT OF THE
FREE AND SOVEREIGN
STATE OF TAMAULIPAS
PUBLIC REGISTRY OF
PROPERTY
COMMERCE
22
<PAGE> 23
Notary Public No. 187
Cd. Victoria, Tamps.
Lic. Leopoldo Juan Bello Lopez Lic Blanca Amalia Cano Garza
Title Holder Appointee
The undersigned, LICENCIADA BLANCA AMALIA CANO GARZA DE BELLO, assigned to
Notary Public Number 187 (One Hundred Eighty-Seven) held by Licenciado Leopoldo
J. Bello Lopez, with jurisdiction in this capital; I HEREBY CERTIFY: that the
present photocopy is a faithful and exact copy of the original of Public
Document Number Three Thousand Five-hundred Ninety-Five, dated October the
seventh of Nineteen Hundred and Ninety-Six, contained in Volume XCV of the
Official Registry entrusted to the undersigned, with respect to the Articles of
Association of the corporation named "GISALAMO", S.A. DE C.V.; a document which
is registered in the Public Registry of the Property of the State in the
COMMERCE SECTION, NUMBER 89, BOOK 6224, DATED NOVEMBER 28, OF 1996, AND I HEREBY
ATTEST that I have personally viewed the twelve two-sided pages and returned
same to the presenter.
GIVEN UNDER MY HAND AND SEAL in Victoria, Capital City of the State of
Tamaulipas, at sixteen hundred hours on the Twenty-Eighth day of November of
Nineteen Hundred and Ninety-Six.
Cert. No. 2056, of the Book of Certification of Documents and Official Registry.
[Signature]
LIC. BLANCA AMALIA CANO GARZA DE BELLO
A. N. P. No. 187
<PAGE> 1
EXHIBIT 10.30
DEPOSIT, OPERATION, EXPLOITATION AND STOCK PURCHASE OPTION AGREEMENT ENTERED
INTO BY AND BETWEEN MR. FRANCISCO DOMENECH TARRAGO AND MR. FRANCISCO DOMENECH
PERUSQUIA, IN THEIR OWN RIGHT, HEREINAFTER REFERRED TO AS "STOCKHOLDERS" AND
"UNIMARK GROUP INC", REPRESENTED HEREIN BY MR. RAFAEL VAQUERO BAZAN, HEREINAFTER
REFERRED TO AS "DEPOSITOR" PURSUANT TO THE FOLLOWING:
D E C L A R A T I O N S
BY "STOCKHOLDERS"
I. That they are individuals, of legal age, with legal capacity to execute any
document or agreement, whether of a civil or commercial nature, as allowed by
the law.
II. That they are the sole and legitimate owners of 500 shares of registered
stock, Series "A", Class I and 120,270 shares of Series "A", Class II stock,
with a nominal value of $100.00 (One hundred and 00/100 Mexican pesos), each,
which in their totality represent all capital stock as of this date of the
Corporation known as "FRUTALAMO, S.A. DE C.V.", which is the issuing company and
that they are designated by the documents and business records of such as acting
in behalf of the company.
III. That the corporation which issued the stocks and is owner of all the real
estate and personal property of juice production (THE PLANT), was duly organized
under the laws of Mexico, as attested to by document number 16,471 dated August
3, 1992, sworn to before LIC. ROGELIO MAGANA LUNA, Notary number 156 of the
Federal District, and is duly registered in the Public Property and Commercial
Registry in its jurisdiction, and listed in the Federal Taxpayer Registry under
number FRU-920803-8H2.
IV. That it is their desire and that no legal impediment exists for
"STOCKHOLDERS" to transfer to "DEPOSITOR" or to "GISALAMO, S.A. DE C.V." the
complete operation and exploitation of all real and personal property for juice
production (THE PLANT), which is the property of "FRUTALAMO, S.A. DE C.V." and
the stock purchase option referred to hereinabove in Provision II, as owners of
said stock, subject to the terms and conditions set forth hereunder.
THE "DEPOSITOR"
I. That it is a foreign corporation, with foreign residence, duly organized
under the laws of the Sate of Texas, as attested to by the document granted on
the ninth of September of 1996, by the Secretary of the State of Texas, of the
United States of America.
1
[English translation of original Spanish document]
<PAGE> 2
II. That the powers exercised by its representative were granted under the laws
of the State of Texas, as attested by the document dated July 26, 1996, sworn to
before Viki L. Coffman, Notary Public of the State of Texas, of the United
States of America.
III. That it has the necessary powers to execute any document or agreement,
whether civil or commercial, allowed by the laws of Mexico or the United States
of America, as well as the necessary means for the full operation and
exploitation of the real and personal property for juice production (THE PLANT),
which is the property of "FRUTALAMO, S.A. DE C.V." and it wishes to have the
option to purchase the stock which is the property of "STOCKHOLDERS".
Therefore, in consideration of the aforementioned provisions, the Parties hereby
agree to the following:
A R T I C L E S
ARTICLE ONE: The operation and exploitation of THE PLANT, shall be granted to a
new corporation named "GISALAMO, S.A. DE C.V." in which 60% of the stock shall
be held by "DEPOSITOR", or whomever such may designate, and 40% shall be held by
"STOCKHOLDERS". Said stockholdings may only vary pursuant to the articles of
association of "GISALAMO, S.A. DE C.V." or until the end of the term fixed in
the following ARTICLE TWO.
ARTICLE TWO: The term referred to in the foregoing article shall be three (3)
years or until payment in full of the price established for the stock purchase
option referred to in article nine, should such option be exercised.
ARTICLE THREE: The administration and control of the corporation operating and
exploiting THE PLANT shall be the sole and exclusive responsibility of
"GISALAMO, S.A. DE C.V."
ARTICLE FOUR: In the event that at the end of the term, or before, as specified
in Article Nine, "DEPOSITOR" shall exercise its stock purchase option,
"STOCKHOLDERS" may, at their election, continue to share in stockholdings in the
percentage corresponding to the payments made.
ARTICLE FIVE: During the period in which "STOCKHOLDERS" have stock participation
in "GISALAMO, S.A. DE C.V.", the company which shall operate and exploit THE
PLANT, should "DEPOSITOR" not make full payment of the amounts set forth in
Articles Six and Nine upon exercising its option to buy, "STOCKHOLDERS" may
continue to draw their respective dividends, with the following exception:
2
[English translation of original Spanish document]
<PAGE> 3
a) The first $420,000.00 dollars of dividends, resulting in each of the years,
from this date until the end of three (3) years, whichever shall occur first,
shall be payable to "DEPOSITOR" or to whomever shall be the stockholder of
"GISALAMO, S.A, DE C.V.", and any amount which shall exceed said specified
amount, shall be distributed according to holdings to each stockholder. The
aforementioned amount, shall not be cumulative for the second and third years.
b) The dividends produced after the period specified in the foregoing paragraph
a), shall be payable 60% to "DEPOSITOR" or to the shareholder of "GISALAMO, S.A.
DE C.V." and 40% or less to "STOCKHOLDERS", according to the percentages
specified in the articles of association of the latter, as long as the former
has not paid the latter the full amount agreed upon for the purchase option
established in Article Nine of this Agreement.
ARTICLE SIX: In order for "GISALAMO, S.A. DE C.V.", to initiate operation and
exploitation of THE PLANT, "DEPOSITOR" shall deliver to "STOCKHOLDERS" or to
"FRUTALAMO, S.A. DE C.V." a guaranty deposit in the amount of $1,910,000.00 (One
million, nine hundred and ten thousand and no/100) as follows:
a) $650,000.00 dollars upon execution of this Agreement.
b) $420,000.00 no later than October 30, 1997
c) $420,000.00 no later than October 30, 1998
d) $420,000.00 no later than October 30, 1999
Deposits shall be designated for payment of debt accrued by "FRUTALAMO, S.A. DE
C.V." as of this date.
ARTICLE SEVEN: In order to exercise its option to purchase stock belonging to
"STOCKHOLDERS", "DEPOSITOR" shall fulfill the provisions of the foregoing
paragraph and attest to its desire to exercise its option to purchase referenced
in Article Nine no later than October 30, 1999.
ARTICLE EIGHT: In order for "DEPOSITOR" to exercise its option to buy under the
terms set forth hereunder in Article Nine, "STOCKHOLDERS" shall undertake to
render "FRUTALAMO, S.A. DE C.V." free of debt as of said date. In the event of
the contrary, the price stipulated shall be discounted in the amount of debt
that the latter shall have as of October 30, 1999.
ARTICLE NINE: Upon exercise of its stock purchase option, "DEPOSITOR" shall pay
"STOCKHOLDERS" in addition to the deposits aforementioned in Article Six of this
Agreement, the amount of $6,000,000.00 (Six million dollars
3
[English translation of original Spanish document]
<PAGE> 4
and no/100 U.S. Currency), in cash or in stock issued or to be issued by UNIMARK
GROUP INC. for the same value or a combination of methods of payment, as
mutually agreed upon by the Parties. Said amount shall be paid as follows:
a) October 30, 1999 $ 1,800,000.00 dollars
b) October 30, 2000 $ 1,800,000.00 dollars
c) October 30, 2001 $ 600,000.00 dollars
d) October 30, 2002 $ 600,000.00 dollars
e) October 30, 2003 $ 600,000.00 dollars
f) October 30, 2004 $ 600,000.00 dollars
ARTICLE TEN: Upon exercise of its stock purchase option and provided that
"DEPOSITOR" shall not have paid "STOCKHOLDERS" the total amount agreed upon in
the foregoing article in cash, stocks or a combination of both, normal interest
shall be accrued at the rate of 7% annually on unpaid balances, and said
interest shall be payable in cash quarterly until total payment has been made.
ARTICLE ELEVEN: Regardless of the fact that "STOCKHOLDERS" shall continued to
draw the interest aforementioned in the preceding article, if total payment of
the amount established in Article Nine is not made, they shall continue to hold
40% of the stockholdings or a lesser percentage according to the articles of
association of "GISALAMO, S.A. DE C.V.", being the company which shall operate
and exploit THE PLANT, along with the benefits resulting from said stock, with
the exception of that which is expressly stated in Article Five of this
Agreement.
ARTICLE TWELVE: In the event that "DEPOSITOR" not exercise its stock purchase
option no later than October 30, 1999, the real and personal property subject of
the operation and exploitation comprising THE PLANT, shall revert back to the
operation and exploitation of "FRUTALAMO, S.A. DE C.V." and/or to
"STOCKHOLDERS".
ARTICLE THIRTEEN: Should "DEPOSITOR" not exercise its stock purchase option no
later than October 30, 1999, the deposits delivered to "STOCKHOLDERS"
aforementioned in Article Six of this Agreement, and the real and personal
property comprising THE PLANT shall remain with the latter as payment of rent
accrued during the time same were operated and exploited by "GISALAMO, S.A. DE
C.V."
4
[English translation of original Spanish document]
<PAGE> 5
ARTICLE FOURTEEN: Should all requirements set forth in this Agreement be met,
and the stock purchase option be EXERCISED, "STOCKHOLDERS" shall deliver and
endorse to "DEPOSITOR" the stocks which are the subject of this agreement, free
and clear of all liens and limitations of ownership.
ARTICLE FIFTEEN: Both Parties attest that the agreed upon value of the shares,
plus the desposits referred to in articles six and nine of this Agreement, is
the total true value of the tangible and intangible assets OF "FRUTALAMO, S.A.
DE C.V." with all which pertains to it de facto and de jure.
ARTICLE SIXTEEN: Upon exercise of its option to purchase stock from "FRUTALAMO
S.A. DE C.V.", "DEPOSITOR" shall be the sole legitimate shareholder of same and
therefore shall be owner of all that pertains to the company which issued the
stocks de facto and de jure, including the financial losses to be amortized as
of the date the stock purchase option is exercised.
ARTICLE SEVENTEEN: Upon exercising its stock purchase option, "STOCKHOLDERS"
shall be obliged to deliver to "DEPOSITOR" all accounting, tax, and business
documents as well as all contracts, authorizations, permissions and any other
document pertaining to "FRUTALAMO, S.A. DE C.V."
ARTICLE EIGHTEEN: As of this date, "STOCKHOLDERS" and "FRUTALAMO, S.A. DE C.V."
shall not carry out any operations related to purchase/sale of merchandise,
finished products or any other operation affecting the interest of "DEPOSITOR"
or "GISALAMO S.A. DE C.V.", except for those operations required to continue the
administration of the business until the stock purchase option is exercised,
including but not limited to: payment of income and expenses accrued, payment of
obligations contracted before or after, accounting, audits, administration, etc.
ARTICLE NINETEEN: Should "DEPOSITOR" exercise his stock purchase option,
DEPOSITOR shall be the only legitimate entity responsible for all operations
carried out by "FRUTALAMO, S.A. DE C.V." as of said date, and shall leave the
property of "STOCKHOLDERS" free of responsibility and same shall be free from
any contingency which may arise, inasmuch as "STOCKHOLDERS" shall only be
responsible for the debts accrued until the date that "DEPOSITOR" has to
exercise his option to buy (October 30, 1999).
ARTICLE TWENTY: The Parties mutually attest that until all obligations set forth
in this Agreement have been fulfilled, they shall not grant as guaranty, or
special guarantee, pledge or mortgage or an any other way encumber the real and
personal property and other tangible or intangible assets which comprise THE
PLANT which are the property of "FRUTALAMO, S.A. DE C.V." without the express
consent of each of the Parties.
5
[English translation of original Spanish document]
<PAGE> 6
ARTICLE TWENTY-ONE: Parties mutually agree that all amounts specified in this
Agreement may be paid, reimbursed or refunded in United States Dollars or in the
equivalent amount in Mexican currency at the exchange rate posted by the Banco
de Mexico for sale on the date in question.
ARTICLE TWENTY-TWO: "STOCKHOLDERS" shall be ensure that "FRUTALAMO, S.A. DE
C.V." execute an agreement granting "GISALAMO, S.A. DE C.V." the corporation
which shall operate and exploit THE PLANT, a contract of "Gratuitous Loan", for
the temporary use and possession of the tangible and intangible assets which
comprise THE PLANT, and which are property of "FRUTALAMO, S.A. DE C.V." under
the terms set forth herein, which term shall not exceed October 30, 1999, in the
event that the option to purchase shares is exercised pursuant to the provisions
of Article Nine.
ARTICLE TWENTY-THREE: In the event that "DEPOSITOR" not exercise its stock
purchase option referred to herein, regardless of whether or not "GISALAMO S.A.
DE C.V." returns to "FRUTALAMO, S.A. DE C.V.," the tangible and/or intangible
assets granted in the gratuitous loan agreement, the Operating Company shall
continue to grant "STOCKHOLDERS" participation in the income or dividends
resulting from operations, and "STOCKHOLDERS" may request audits of financial
statements of the Operating Company regardless of their percentage of
stockholdings.
ARTICLE TWENTY-FOUR: Regardless of the provision of Article Twenty, the
Licenses, Permissions, Authorizations, Concessions, and Franchises and any other
right which may exist, shall remain the property OF "FRUTALAMO, S.A. DE C.V."
and/or "STOCKHOLDERS"; until all contractual obligations hereunder are
fulfilled.
ARTICLE TWENTY-FIVE: "FRUTALAMO, S.A. DE C.V." and/or "STOCKHOLDERS" shall allow
"DEPOSITOR" and/OR "GISALAMO, S.A. DE C.V." the corporation which shall operate
and exploit the real and personal property, the use of the list of clients and
suppliers, operating systems and any other rights pertaining to the former,
including but not limited to the use of the export quota authorization of
products drawn up by the former and annually assigned by the Consejo National
Agropecuario [National Department of Agriculture & Fishery].
ARTICLE TWENTY-SIX: The Parties mutually agree that "GISALAMO, S.A. DE C.V." the
corporation which shall operate and exploit THE PLANT belonging to "FRUTALAMO,
S.A. DE C.V.", by means of the gratuitous loan agreement executed, shall be
administered pursuant to the terms set forth in the articles of association and
that such do not interfere or in any way affect the provisions of this
Agreement.
6
[English translation of original Spanish document]
<PAGE> 7
ARTICLE TWENTY SEVEN: Should this Agreement be rescinded, there shall be a
contractual penalty in the amount of $1,000,000.00 dollars (One million and
no/100 U.S. Dollars).
ARTICLE TWENTY-EIGHT: The following shall be considered as cause for the
rescission of the contract and the application of the contractual penalty:
Should "DEPOSITOR"
a) not exercise its stock purchase option as referred to herein, no later than
October 30, 1999.
b) not liquidate the deposits and contractual sums for the stock purchase
option, within the established periods, as referenced in Articles Six and Nine
of this Agreement.
c) not grant "STOCKHOLDERS", or whomever same shall designate, participation in
the income and dividends that are their share IN "GISALAMO S.A. DE C.V.", the
Operating Company of the tangible and intangible assets of "FRUTALAMO, S.A.
DE C.V."
d) not operate and/or exploit the tangible and intangible assets which are the
property of "FRUTALAMO, S.A. DE C.V.", pursuant to the terms sets forth in the
gratuitous loan agreement executed as of this date.
e) Give as guaranty, loan, rent, mortgage, special guaranty, or in any other way
encumber the tangible and/or intangible assets which are the property of
"FRUTALAMO, S.A. DE C.V." and/or the "STOCKHOLDERS", without their express
authorization.
f) Either refuse to indemnify contracted personnel pursuant to Article
Twenty-Six or refund to "STOCKHOLDERS" any expenditure that they may have had to
make in order to comply with labor regulations, which are the duty of
"DEPOSITOR".
g) Refuse to return to "FRUTALAMO, S.A. DE C.V." the assets which comprise "THE
PLANT", in the event that the stock purchase option is not exercised.
h) Fail to comply with any of the contractual obligations hereunder.
SHOULD "STOCKHOLDERS"
7
[English translation of original Spanish document]
<PAGE> 8
a) Refuse to carry out the stock purchase option as referenced herein, when
"DEPOSITOR" and/or "GISALAMO, S.A. DE C.V." shall have fulfilled all obligations
established herein.
b) Refuse to deliver shares or titles due "DEPOSITOR", upon fulfillment of the
contractual obligations.
c) Refuse to receive payments made by "DEPOSITOR", when these have been made
within the terms established herein.
d) Refuse to refund to "DEPOSITOR" the amounts that the latter may have expended
to cover legal, tax, labor or any other obligation which are the duty of the
"STOCKHOLDERS" or to the Company issuing the stocks until the date the stock
purchase option referenced herein is exercised.
e) Refuse to deliver to "DEPOSITOR" or to whomever the latter shall designate,
the tangible and intangible assets necessary for operation and exploitation.
f) Not provide the required advice to "DEPOSITOR" and/or to the company which
shall operate and exploit THE PLANT, with respect to clients, suppliers,
production, distribution and deny use of the export quota authorization,
assigned annually by the Consejo National Agropecuario.
g) Fail to comply with each and every contractual obligation herein.
ARTICLE TWENTY-NINE: "DEPOSITOR" and/or "GISALAMO, S.A. DE C.V.", the
corporation which shall operate and exploit THE PLANT, shall hire the
administration and/or production personnel deemed necessary and which are
currently employed by "FRUTALAMO, S.A. DE C.V.", AND "FRUTALAMO, S.A. DE C.V."
and/or "STOCKHOLDERS" shall completely indemnify the personnel that the former
does not require.
The obligation of "FRUTALAMO, S.A. DE C.V." to indemnify the personnel that
"DEPOSITOR" and/or "GISALAMO, S.A. DE C.V.", as the company that shall operate
and exploit THE PLANT, do not require shall terminate March 31, 1997, should the
latter not advise the former, no later than said date, that it does not require
said personnel.
ARTICLE THIRTY: The Parties mutually convene to execute this Agreement, before
the notary public of their choosing, the expense of which shall be borne by
"DEPOSITOR."
ARTICLE THIRTY-ONE: For the purposes of this Agreement, the Parties give the
following addresses:
8
[English translation of original Spanish document]
<PAGE> 9
"STOCKHOLDERS" "DEPOSITOR"
Rafael Rebollar No. 67 Carrera Torres Poniente No. 226
Col. San Miguel Chapultepec Cd. Victoria, Tamps.
C.P. 11850 C.P. 87000
Mexico, D.F.
ARTICLE THIRTY-TWO: The Parties attest that this Agreement was executed with
their full consent and was drawn up without Fraud, Error or Bad Faith on the
part of either one.
ARTICLE THIRTY-THREE: The Parties mutually agree that the terms of this
Agreement annul any other agreement which has been made to date verbally, or in
any other document, contract, agreement, letter of intent, or other document
signed by either Party.
ARTICLE THIRTY-FOUR: The contractual Parties herein declare that any amendment
made to this Agreement shall be made with the prior consent of the Parties
before two witnesses and shall be attached hereto and constitute a part of this
Agreement.
With regard to the interpretation and fulfillment of this Agreement, the parties
shall submit themselves to the jurisdiction of the Courts of the Federal
District of Mexico, and hereby renounce any other jurisdiction which might
apply, by reason of their present or future residence. The Parties subscribe
this Agreement on the seventeenth day of the month of December, 1996, before two
witnesses.
"STOCKHOLDERS" "DEPOSITOR"
(Signature) (Signature)
- ------------------------- --------------------------
MR. FRANCISCO DOMENECH FOR "UNIMARK GROUP, INC."
TARRAGO MR. RAFAEL VAQUERO BAZAN
(Signature) (Signature)
- ------------------------- --------------------------
LIC. FRANCISCO DONENECH FOR "FRUTALAMO,S.C. DE C.V."
PERUSQUIA MR. FRANCISCO DOMENECH
TARRAGO
WITNESS WITNESS
9
[English translation of original Spanish document]
<PAGE> 10
(Signature) (Signature)
- ------------------------- --------------------------
JOSE MARIA MARTINEZ LUIS EDUARDO SERAFIN
BROHEZ, ENGINEER GOMEZ
10
[English translation of original Spanish document]
<PAGE> 1
EXHIBIT 10.31
GRATUITOUS LOAN AGREEMENT ENTERED INTO BY AND BETWEEN FRUTALAMO, S.A. DE C. V.
REPRESENTED HEREIN BY MR. FRANCISCO DOMENECH TARRAGO, ENGINEER, HEREINAFTER AND
FOR PURPOSES OF THIS AGREEMENT REFERRED TO AS "LENDER"; AND, "GISALAMO S.A. DE
C.V." REPRESENTED HEREIN BY MR. JOSE MA. MARTINEZ BROHEZ, ENGINEER, HEREINAFTER
AND FOR PURPOSES OF THIS AGREEMENT REFERRED TO AS "BORROWER"; PURSUANT TO THE
FOLLOWING PROVISIONS AND ARTICLES:
DECLARATIONS
I. WHEREAS MR. FRANCISCO DOMENECH TARRAGO, Engineer, as representative of
"LENDER" declares:
a) That his principal is a Mexican company duly organized under the
laws of the nation [Mexico] and is duly authorized to enter into contracts and
assume such obligations, as attested to in public document number 16,471 dated
August 3, 1992, given under oath before LIC. ROGELIO MAGANA LUNA, Notary Public
No. 156 with jurisdiction in the Federal District and registered in the Public
Registry of Commerce under Commercial Page No. 162665, of the Book of Commerce,
on August 17, 1992.
b) That his principal has as its primary business objective the
processing, bottling, commercialization and sale of citrus fruit for juice
extraction and manufacture of concentrate, as well as the performance of all
types of agreements permitted by Law.
c) That in his capacity as Legal Representative of "LENDER", he has
sufficient legal authority to enter into this Agreement, the foregoing
agreement, and has been granted powers under the Actos de Administracion y
Dominio (Documents of Administration and Power) which have been conferred upon
him, which to this date have not been revoked or restricted, which are confirmed
in the public document cited in the foregoing paragraph a).
d) That "LENDER" is the legitimate owner and has full possession of the
assets which comprise the juice extraction "PLANT" (land, buildings, and
equipment) which is equipped and ready for operation, including an evaporator
and residual water treatment plant (installation pending on these latter two
pieces of equipment), and holds all Permissions, Authorizations, and Licenses
required by the various Municipal, State and Federal Authorities for its
operation.
e) That it is the "LENDER'S" desire to enter into this "GRATUITOUS LOAN
AGREEMENT" pursuant to the terms and conditions set forth hereunder.
1
[English translation of original Spanish document]
<PAGE> 2
II. Mr. JOSE MA. MARTINEZ BROHEZ, ENGINEER, as "BORROWER'S" representative,
herein manifests:
a) That his principal is a Mexican company duly organized under the
laws of the nation [Mexico] and being duly authorized to enter into contracts
and assume such obligations, as attested to in public document number 2,595
dated October 7, 1996, given under oath before LIC. BLANCA AMALIA CANO GARZA DE
BELLO, Notary Public No. 187 with jurisdiction in Cd. Victoria, Tam., with
pending registration in the Public Registry of Commerce.
b) That his principal has as its primary objective the processing,
bottling, commercialization and sale of citrus fruit for juice extraction and
manufacture of concentrate, as well as the performance of all types of
agreements permitted by Law.
c) That in his capacity as Legal Representative of "BORROWER", he has
sufficient legal authority to enter into this Agreement, the foregoing
agreement, and has been granted powers under the Actos de Administracion y
Dominio (Documents of Administration and Power) which have been conferred upon
him, which to this date have not been revoked or restricted, which are confirmed
in the public document cited in the foregoing paragraph a).
d) That it is the "BORROWER'S" desire to enter into this "GRATUITOUS
LOAN AGREEMENT", pursuant to the terms and conditions set forth hereunder.
Both parties herein attest that this agreement is subscribed pursuant to Article
Nineteen of the "DEPOSIT, OPERATION, EXPLOITATION AND OPTION TO PURCHASE
AGREEMENT" executed October 30, 1997, between MR. FRANCISCO DOMENECH TARRAGO,
ENGINEER, LIC. FRANCISCO DOMENECH PERUSQUIA, by his own right and in his
capacity as representative of "FRUTALAMO, S.A. DE C.V." and "UNIMARK, GROUP
INC." represented by MR. RAFAEL VAQUERO BAZAN" which is attached to this
Agreement.
Pursuant to the aforementioned provisions made by the Parties, the same agree to
grant and submit to the following:
A R T I C L E S
ARTICLE ONE: PURPOSE: "LENDER" GRANTS TO "BORROWER" a "GRATUITOUS LOAN" of the
assets mentioned in Provision 1, paragraph d) of this instrument, which are
equipped and ready for operation, including an evaporator and residual water
treatment plan (installation is pending on the latter two pieces of equipment).
2
[English translation of original Spanish document]
<PAGE> 3
ARTICLE TWO: UTILIZATION: ""BORROWER" shall utilize the Industrial Facility
(Land, Buildings and Equipment) for the exploitation of its Commercial Purpose,
that being the processing, packaging, commercialization and sale of citrus fruit
for juice extraction and production of concentrate.
ARTICLE THREE: TERM: The term of this Agreement shall be from October 30, 1996
to October 30, 1999.
ARTICLE FOUR: PAYMENT OF SERVICES: "BORROWER" shall bear the expenses of water,
electricity and phone utilities.
ARTICLE FIVE: MAINTENANCE COSTS AND INSURANCE PAYMENT: ""BORROWER" shall pay all
costs incurred for maintenance required for the proper functioning of the
Industrial Plant. Furthermore, "BORROWER" shall bear the expense of premiums for
fire and liability insurance which it shall be required to obtain; and the
beneficiary of said insurance shall be "FRUTALAMO, S.A. DE C.V."
ARTICLE SIX: INDEMNIFICATION OF WORKERS: Inasmuch as "LENDER" currently employs
thirty-seven workers, it shall indemnify them in order to terminate the
contractual relationship no later than November 30 of the current year.
Furthermore, and if it so desires, "BORROWER" shall have the option to rehire
said personnel, thereby freeing "LENDER" from all employer-employee
responsibility which may arise with said employees or with any other employee
which may be hired, and all obligations and risks associated with those
contracted employees shall be born by "BORROWER".
ARTICLE SEVEN: PERMISSIONS AND AUTHORIZATIONS: "LENDER" promises "BORROWER" to
maintain all Permissions, Authorizations, and Licenses which, as of this date,
have been granted by the various Municipal, State and Federal Authorities, and
furthermore shall obtain Land Use Permits from pertinent Municipal and State
authorities as well as those permits required for the Concession of Water Wells
and Residual Water Discharge provided that these are not significantly altered.
ARTICLE EIGHT: EXPORT QUOTA TO THE UNITED STATES: "LENDER", during the term of
this "GRATUITOUS LOAN AGREEMENT", assigns to "BORROWER" its assigned volume of
quota for Orange Juice (Fresh and Concentrate).
ARTICLE NINE: ASSIGNMENT: Both "LENDER" and "BORROWER" are in agreement to
prohibit the partial or total assignment or transfer of the rights and
obligations acquired herein in this "GRATUITOUS LOAN AGREEMENT"; the foregoing,
without prior written consent of the other party.
ARTICLE TEN: AMENDMENTS TO AGREEMENT: In the event that amendments to this "LOAN
AGREEMENT" are required, both "LENDER" and "BORROWER" shall be required to carry
out the respective Amendment Agreement, which must be signed by the parties as
well as two witnesses, in order to incorporate said Amendment as an integral
part of this Agreement.
3
[English translation of original Spanish document]
<PAGE> 4
ARTICLE ELEVEN: INTEGRATION: Both "LENDER" and "BORROWER" herein declare that
this Agreement is real, just and equitable, and is free of error, fraud,
violence, ignorance, inexperience, unlawful enrichment, and injury which could
nullify same; therefore, the parties convene that this is the sole document
executed by both parties, and replaces any verbal or written agreement executed
prior to this date.
At the termination of this Agreement, "BORROWER" shall deliver to "LENDER" the
goods delivered in this "GRATUITOUS LOAN AGREEMENT," in the same condition in
which they were received, excepting normal wear and tear.
ARTICLE TWELVE: ADDRESSES: The parties hereunder indicate their addresses:
"LENDER" "BORROWER"
Rafael Rebollar No. 67, Carrera Torres Poniente No. 226
Col. San Miguel Chapultepec Cd. Victoria, Tamaulipas
Mexico, Distrito Federal C.P. 87000
C.P. 11850
ARTICLE THIRTEEN: JURISDICTION AND APPLICABLE LAW: The parties convene and
expressly agree to abide by the jurisdiction of the Courts of Cd. Victoria,
Tam., as well as the applicable laws of the State of Tamaulipas, and the
foregoing shall be applied to the interpretation and fulfillment of this
"GRATUITOUS LOAN AGREEMENT", and hereby renounce any other jurisdiction which
might apply, by reason of their present or future residence.
The parties, having read this Agreement and being duly informed of the scope of
the same, do hereby execute the same in duplicate in the presence of two
witnesses in the City of Cd. Victoria, Tam., on the 17th day of the month of
December, 1996.
"LENDER" "BORROWER"
(Signature) (Signature)
FOR "FRUTALALMO, S.A. DE C.V." FOR "GISALAMO, S.A. DE C.V."
FRANCISCO DOMENECH JOSE MA. MARTINEZ
TARRAGO, ENGINEER BROHEZ, ENGINEER
4
[English translation of original Spanish document]
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE UNIMARK GROUP, INC.
<TABLE>
<S> <C>
1. Unimark Foods, Inc., a Texas corporation
2. Unimark International, Inc., a Texas corporation
3. Industrias Citricolas de Montemorelos, S.A. de C.V., a company
organized under the laws of Mexico
4. Grupo Industrial Santa Engracia, S.A. de C.V., a company organized
under the laws of Mexico
5. Les Produits Deli-Bon Inc., a Canadian corporation
6. Simply Fresh Fruit, Inc., a California corporation
7. Agromark, S.A. de C.V., a company organized under the laws of Mexico
8. Gisalamo, S.A. de C.V., a company organized under the laws of Mexico
9. Unimark Foods Europe Ltd., a company organized under the laws of the
United Kingdom
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-78352-D) pertaining to The UniMark Group, Inc. 1994 Employee Stock
Option Plan and The UniMark Group, Inc. 1994 Stock Option Plan for Directors of
our report dated March 27, 1998, with respect to the financial statements of The
UniMark Group, Inc. included in this Annual Report on Form 10-K for the year
ended December 31, 1997.
ERNST & YOUNG LLP
Dallas, Texas
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,237
<SECURITIES> 0
<RECEIVABLES> 12,284
<ALLOWANCES> 685
<INVENTORY> 25,726
<CURRENT-ASSETS> 43,195
<PP&E> 43,357
<DEPRECIATION> 5,227
<TOTAL-ASSETS> 94,616
<CURRENT-LIABILITIES> 47,723
<BONDS> 8,626
0
0
<COMMON> 86
<OTHER-SE> 38,166
<TOTAL-LIABILITY-AND-EQUITY> 94,616
<SALES> 81,284
<TOTAL-REVENUES> 81,284
<CGS> 59,280
<TOTAL-COSTS> 59,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 542
<INTEREST-EXPENSE> 3,294
<INCOME-PRETAX> (9,742)
<INCOME-TAX> 77
<INCOME-CONTINUING> (9,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 139
<CHANGES> 0
<NET-INCOME> (9,680)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,268
<SECURITIES> 0
<RECEIVABLES> 9,386
<ALLOWANCES> 142
<INVENTORY> 19,411
<CURRENT-ASSETS> 36,066
<PP&E> 31,889
<DEPRECIATION> 2,712
<TOTAL-ASSETS> 76,683
<CURRENT-LIABILITIES> 24,313
<BONDS> 4,332
0
0
<COMMON> 86
<OTHER-SE> 47,714
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<SALES> 65,238
<TOTAL-REVENUES> 65,238
<CGS> 46,612
<TOTAL-COSTS> 46,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 1,407
<INCOME-PRETAX> (59)
<INCOME-TAX> (272)
<INCOME-CONTINUING> 213
<DISCONTINUED> 0
<EXTRAORDINARY> 330
<CHANGES> 0
<NET-INCOME> 543
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
